Moving Averages Are Not Areas of Support or Resistance

While stocks can bounce of off, or stall at moving averages, those areas shouldn’t be considered as support or resistance. They’re just indicators, and an average of price action. True support and resistance can only be determined by areas of actual price.

Take the XAU here. The moving averages are both trending up. Higher lows are followed by higher highs. While the XAU did bounce off the 50dma; it’s not support.  The bottom of that pivot candlestick at 171.64 is support. Where’s the next support level? Find the next pivot spot, or area of consolidation, directly to the left. 166.72 held the bears from pulling the index lower. That’s support.

So while it raises a red flag when trade drops below the 50dma… It’s still ok. As long as that next support area of 166.72 holds, the index stays moderately bullish.