Why averages matter when it comes to investing

In this article, Mish Schneider, director of trading research and education at MarketGauge.com, considers the importance of the 50-day moving average as an indicator

On Tuesday, we talked about a reversal chart pattern in the Nasdaq 100 (tracked by the Invesco QQQ ETF [QQQ]) that was created from the price clearing over the 50-day moving average (DMA).

Although yesterday began with price under the 50-DMA, QQQ turned around, closing over Tuesday’s high. Hence, the reversal pattern was confirmed right by a key moving average.

Now, the 50-DMA is a support area.

This is important to note when using major moving averages as references for support or resistance levels.

Looking forward, ideally QQQs should hold the 50-DMA at $320, although we would have a stop under Tuesday’s low or under $311 to give it some room.

Additionally, the strength we are seeing in the QQQ also bodes well for tech giants, several of which also tested and held their 50-DMAs — such as Microsoft [MSFT].

In a market with so many opportunities coming from new tech and SPACs, large tech has a lot to compete with for investors’ money.

With that said, this is a great time for large companies to push into new trends.

Several are trying to divest, illustrated by Apple’s [AAPL] exploration of the EV space.

Our takeaway from the QQQ support level and now rally is that buyers show up at these key moving averages. We do not want to see the Nasdaq fail as that can drag everything with it. Nonetheless, QQQ may have held a key support level, but the leadership has clearly changed to energy, banks and transportation.

This article was originally published on MarketGauge. With over 100 years of combined market experience, MarketGauge's experts provide strategic information to help you achieve your investing goals.