Arthur Hill has an awesome post up over at Stock Charts. He notes that very old resistance levels didn’t really come into play at key S&P 500 breakout levels. Mainly because the construction of the indices change so much.
Here’s the key rule of thumb he suggests
“I am not suggesting that chartists throw out the concepts of support and resistance. However, we need to think twice when analyzing an index, average or ETF that undergoes component changes and weighting adjustments over time. The older a support or resistance level, the less robust it really is. This also means that chartists should focus more on the present and less on the past.”
The good news is for us is most of our indices are trending up at all time highs. That said, ETF and Index constructions will always change and we have to remember this.
Trade ’em well.
Link: Full read