Trading Nation

Is this technical indicator the ultimate buy sign?

More gains ahead for the S&P?

The most widely watched technical indicator continues to work like a charm.

Over the past 3 1/2 years, the has managed to bounce off of its moving average whenever it has approached or dipped below it.

And now it's working once again. After dipping only slightly below its 200-day moving average in the prior week, the S&P 500 enjoyed four straight winning sessions, and opened very slightly in the green on Wednesday.

"Against the backdrop of rising macro volatility, the oldest technical indicator in the book proved to be the most prescient," Evercore ISI technical analyst Rich Ross wrote to CNBC.

Starting in 2012, the S&P 500 has bounced off of or rebounded from the 200-day moving average several times as the market's rally has pressed on.

The 200-day moving average is a deceptively simple indicator. All it does is compile and average the 200 most recent closes. But because it quiets the day-to-day noise and "smoothes out" recent chart history, some find it to be a very useful device.

Frequently, technical analysts will compare a chart's current level to its 200-day moving average, and use that to gauge underlying "strength."

The bounce off of the 200-day moving average "demonstrated that the major trend of the broader market remains intact," Craig Johnson of Piper Jaffray wrote to CNBC. "Buy the dips."

Indeed, "buy the dips" has become many traders' manta over the past few years.

Perhaps, then, perception has become reality when it comes to the 200-day moving average; bounces off of the "smoothing mechanism" have been so frequent that traders have been conditioned to buy as soon as the S&P dips below it.

Naturally, this has the makings of a strategy that works until it doesn't. And not every technical analyst is enthusiastic about the recent bounce.

"The uptrend is indeed intact, but the momentum has been slowing under the surface," said Ari Wald, technical analyst with Oppenheimer. "The breakdowns at the stock level are beginning to creep higher…. So with this intact uptrend, we just want to be a little bit more selective."

Wald leans toward the two sectors that have been leading this year: health care and consumer discretionary.

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