Battling Averages and Trend-Line Support

On the 26th December 1941, US President Franklin D Roosevelt signed a joint resolution of Congress changing the national Thanksgiving Day from the last Thursday of November to the 4th Thursday, reasoning that an earlier celebration of the holiday, which usually continues throughout the weekend, would give the economy an economic boost.

If ever there was a year when an economic boost was needed, this year is one and not just for America.

For guidance on economic activity going forward, we prefer to study the major stock market Indices as they are a leading indicator for the economy.

Unfortunately US stocks starting to roll over on the very day that the Fed announced QE3, September 13th 2012, since when they have been trending lower.

Most, if not all market participants watch the 200 day moving average, considered to be a major support OR resistance level in respect of security price (s.) and usually they stampede out of stocks at the first sign of it being breached. The blue lines are 200 day MAs.

Technicians also study trend lines such as the dashed red ones below, again treating any breech of the line as a warning of a possible trend change.

This has not been the case of late, despite both the breech of the 200 day MA and of the post October 2011 to date trend line, as evidenced in the chart of US stocks, whether they are large, medium or small.

Thanksgiving is a time of horrendous travel logistics, as millions travel the length and breadth of America to be with loved ones for the traditional thanksgiving dinner.

For the investors amongst you, it may be prudent also to closely watch the battle going on around the aforementioned support levels, particularly once the markets revert to normal following the thanksgiving holiday.

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