Invest and Trade Profitably with Jon Johnson

You said in one of your past reports that the 10 and 18 day MVA acted as resistance in continuing downtrends. Regarding the consolidation or pullback you expect the next week do you consider these levels as necessary to be tested before a possible break higher? Could you please tell me where I can consult [to find] these MVA levels for different stocks.

August 30, 2000

The 10 and 18 day MVA tend to act as resistance for stocks in continuing downtrends and they also act as support for stocks in continuing uptrends. As we have indicated in several individual stock write-ups on the way up, stocks that breakout often make that initial rally then come back and test the breakout before starting back up. Then they tend to use the short term MVA (10 and 18 day) as support as they continue the breakout move, bouncing up off of the 4 to 5 times before testing lower (typically down to the 50 day MVA or other longer term uptrend.

As we saw in the downtrend, these same short term MVA act as resistance as the stock or index moves lower, rallying up to them and then failing and starting another leg lower in the downtrend. We made a lot of money on the way down playing that very action.

When a trend is changing, they are not such good indications of support and resistance. In other words, the trend needs to get organized and established before they act as reliable levels to enter positions from.

As for the current action we do anticipate a test of these levels on the pullback. That is typical action after stocks run higher. They can test below those levels intraday and then run back to close over them, thus holding the support on the close.

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