Market Wrap – Explanation of Moving Averages – Floors & Ceilings
November 2, 2013
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My Market Wrap: BONDS FALL BELOW 200-DAY FLOOR. I find this significant…let me explain…
We had a nice run of bond trading above the 200-day moving average floor, but today the trading closed below the floor. If you use my Glass Elevator analogy, the 200-day moving average is no longer a floor…it has become a ceiling.
Moving Averages are simply lines on a graph that give traders information on where the bond has traded over time. The 200-day moving average is the one we’re looking at now.
LAST WEEK, when the bond was trading above the 200-day moving average, it acted as a floor of support. Why? Because as bonds were being sold off, the price would fall towards the floor and then traders would start buying and the price would go up…the floor acted as support for bond prices…it kept bond prices from falling too low.
TODAY, the trading fell below the floor. Now the bond is trading underneath and as a result the 200-day moving average has become a ceiling…it now acts against us…it’s now a ceiling of resistance. Now traders look to the line as a reason to sell, not to buy. I hope that’s not too confusing. If this doesn’t make sense to you then call me…I would be happy to explain it. Like most things, it’s not a difficult concept to understand, but it is something you have to learn…it’s not intuitive. Let me know if you have questions…
So, now that the bond is trading below the floor, I expect rates/pricing to open next week lower, unless of course there is some economic report or other geopolitical news that influences traders to buy bonds. If I’m right, pricing should be worse at the beginning of the week…
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