Editor’s Note: I’d personally like to invite you to join Getting the Market Right host Steve McDonald and today’s guest, Karim Rahemtulla (along with most of the Club’s other editors), at our upcoming Private Wealth Seminar this July 23-24 at the Fairmont Chateau Whistler in British Columbia.
This is your chance to be part of an exclusive group of like-minded investors for what should be a spectacular financial retreat.
But don’t delay! We’re nearly sold out, and your exclusive $300 discount expires tomorrow. Click here now to reserve your spot.
Donna DiVenuto-Ball, Managing Editor
Transcript:
Steve McDonald: Our guest is Karim Rahemtulla, the Club’s Options Strategist, and he’s here to talk about support levels in the S&P.
Welcome, Karim.
Karim Rahemtulla: Thanks, Steve. Glad to be here.
SM: It’s nice to have you. Just so we’re all on the same level, what are support levels? How do they work?
KR: Well, these levels are where the market’s traded down. We look for the last time it fell and at what level it fell to before it recovered.
And usually when it falls and has a sharp correction like we’ve had – 10% or so – you want to look for it to retest those levels that it fell to.
So right now, the market’s trying to retest. It’s already retested twice and might retest a third time. And each time it retests that level, you’re looking for it to bounce back up.
And if it doesn’t bounce back up and go through those levels, then you’re in for more pain.
SM: So that was my next question. We’ve been bouncing off of these support levels in the S&P and the Dow. What’s going to drive it below? What’s going to drive it up? What’s going to have to happen?
KR: Well, our biggest problem right now is what’s happening in the political environment. We’re not getting very sound information coming from our government.
One day, we’re looking at things like tariffs. The next day, we’re looking at exemptions. Then we’re seeing news about internet companies being taxed or Amazon being broken up.
You’ve got all this stuff coming out that’s making investors very nervous and very fearful. But the flip side is the economy’s doing great.
So you’ve got to decide what you’re going to look at. Are you going to look at the short-term noise that’s out there? Or are you going to look at the bigger picture?
SM: So how do you use this?
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KR: It’s usually a short-term indicator. They look at averages based on 50-day moving averages, 100-day moving averages, 200-day moving averages. So the indicator that you don’t want to break is the 200-day moving average because that’s a longer-term indicator.
SM: And you consider the 200-day moving average a support level?
KR: That’s the support level that you don’t want to fall below right now.
SM: And where do people find this?
KR: You can go to pretty much any financial site and it’ll show you a chart that has a line going through different things. Typically, it’ll show 50 DMA, 100 DMA or 200 …read more
Source:: Investment You
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