The NASDAQ index has moved lower over the last 4 trading days and currently trades down around 1% on the day. The index has moved down -1.14% to -1.17% on 3 consecutive days…
That decline has pushed the price closer to a swing area between 13101.18 and 13181.09. Also in sight is the rising 100-day moving average at 13070.54. The low price has reached 13161.76 so far today. So the price has moved within the swing area, but is it still a distance away from the key 100-day moving average. The last time the price moved below the 100-day moving average back in March for a single day. Moving below that moving average would increase the bearish bias.
The swing area and the moving average may give dip buyers a reason to buy, and also a borderline to lean against if they are wrong.
What might also tempt buyers is that the RSI index is approaching oversold levels near the 30.0 level. When the RSI gets that low, there is a tendency to slow the decline. However, traders must be careful as trending markets are fast, directional, and can move farther than what traders expect. As a result, the RSI can remain oversold and get even more oversold.
Hence the importance of leaning against the swing area and the 100-day moving average. Each provides a borderline for the dip buyers. If the price were to move below the swing area and 100-day moving average, get out. Those are your risk-defining levels. The RSI is just a tool to give traders a “heads-up” for a potential oversold condition.
This article was written by Greg Michalowski at www.forexlive.com. Source