NEW YORK (TheStreet) -- Why is chart support important? Because the stock market has never corrected (or crashed) without first breaking a key support level.
If you can identify that level, you will avoid the crash.
What is chart support? It's a certain price level likely to end a pullback and restart a rally.
It is no secret that investors, especially the so-called pros, have been expecting a major correction since the beginning of 2013.
That's a long time to be bearish and wrong. Business Insider astutely summed up the situation as follows on June 23, 2014: "There's a huge party happening in the market -- and everyone on Wall Street is miserable."
In other words, everyone following the advice of Wall Street analysts has missed out on huge profits and is miserable. People who let their portfolios run as long as the S&P 500 stayed above support, however, would be happy.
Until recently, the "major market top" indicator has been flashing the "all clear" signal, but this is starting to change.
The odds for a correction are increasing, as is the importance of watching key support. It's no reason to panic, but it makes sense to put an early warning system in place (like a Tsunami siren).
'Standard' Early Warning System
Many investors use the 200-day simple moving average as a rudimentary way of discriminating between bull and bear markets. (A price above the 200-day SMA is a buy signal a price below it is a sell signal.)
Using the 200-day SMA as rule of thumb is better than using none, but the 200-day SMA is too popular to be accurate. How so?
The stock market likes to fool the crowded trade, and buying and selling based on the 200-day SMA is generally the crowded trade. Many times the market delivers multiple seesaws across the 200-day SMA just to throw investors curveballs.
The chart below shows that the 200-day SMA has provided as many incorrect signals as correct ones recently -- making it no better than rolling the dice.
Improved Early Warning System
Here is a look at a better early warning system: the 50-week SMA and technical support.
Since 2012, the S&P 500 has never closed more than a few points below the 50-day SMA (based on a weekly close).
Obviously it's easy to evaluate support levels in hindsight, but I have highlighted technical support at 2040 and when the S&P 500 tested the 50-day moving average in recent months.
Even reliable patterns will break at some point, but why not milk them while they work?
Technical support says that worries about a correction or crash are premature as long as the S&P 500 stays above 2040 to 2056.
This is a simplified way of looking at things, but sometimes simple is best.
A more detailed S&P 500 analysis is available here: S&P 500 Analysis
This article is commentary by an independent contributor. At the time of publication, the author held shares of iShares Silver Trust (SLV), United States Oil Fund (USO) and Guggenheim CurrencyShares Euro Trust (FXE).