redback report, week ended 1/6/2012, page-9

Hi Brad,

Supports are hypothetical levels where a stock/index might bounce, pause or break through.

In bearish conditions, supports get broken on a regular basis. It's confirmation of the current sentiment.

Personally I don't look at the 200 DMA - I know it is a hallowed figure in the literature and has a justifiably good record. I put a bit more weight on the 150-DEMA and the 120DEMA. But - to each their own. Rob7, from memory, stood by the 195DMA. But my memory isn't to be trusted. :)

When a stock is above/below such long term levels - they suggest certain strategies - above - buy the dips. Below - sell the rallies.

Eventually, of course, George Soros's reflexivity principle kicks in and those strategies don't work any more - and the stock/index moves back above (or below) the magic line.

Hope that helps.

Redbacka