How to Spot a Real Breakout Using the 200-Day Moving Average

Dave Keller introduces the 200-day moving average as the most important long-term trend indicator he uses and says five hand-picked stocks will illustrate meaningful breakouts, failed breakouts or breakdowns, and actionable names breaking through the level.

He describes the 200-day as a barometer that investors and money managers tend to know about from their own experience, since they have often seen price react to it and hear other market participants discuss it. He says that watching a level many others are watching can be helpful.

Keller starts with Tesla, which had just reported earnings. He says his question with a company below its 200-day moving average is whether post-earnings trading will provide enough of an upside boost to push it above the level. In Tesla's case, he says the upside follow-through finally arrived after earnings.

Before walking through the specifics, he explains the chart layout: a daily price chart covering roughly a year and a half, a 21-day exponential moving average in green, a 50-day simple moving average in blue and the 200-day moving average in red. Below the price he shows the RSI and a performance spread comparing the stock with the S&P 500. He adds that he uses trend lines on these charts.

Keller recounts that Tesla had broken below its 200-day over the summer and fell to a low near $300 in late June. It then recovered toward roughly $380 to $385, where several resistance levels cluster. He says a valid breakout above that confluence would be more significant.

Tesla closed above the 200-day on Monday of the week, failed to hold that level on Friday, and then on Tuesday closed above $400, around $407. Keller says that move finally confirmed a break above the 200-day.

Keller says that on any chart he shows, a one-day break above the 200-day moving average is not sufficient. He wants to see an additional follow-through day, meaning another move above the level after the initial break.

Keller says that for Tesla, the weight of evidence is bullish because the stock closed above the 200-day and then had a follow-through day. He points out that a similar pattern appeared in late June, when Tesla closed above the 200-day with a follow-through day, but the next day it closed back below the level.

He describes the 200-day as a possible initial entry point and the level he is following. A follow-through day confirms an uptrend phase, but any close back below the 200-day, in his view, negates the breakout. He says that makes the level a signal and also an initial stop, because his thesis is that a breakout above the 200-day implies further upside.

Keller says one of the quickest ways to tell that a breakout thesis is wrong is if price rotates back below the 200-day immediately. He says that is what signaled that the late-June breakout was not a good one and that a retrenchment below the 200-day followed, which he says happened as the stock moved into the July lows.

Keller says he does not use the 200-day in isolation and combines it with other indicators to compare and confirm signals. For Tesla he draws a purple trend line connecting the major high in December 2025 to swing highs in May. He says that line lines up with a high in early July and with Monday's high of the week, and that on Tuesday the price confirmed a break above it.

He says trend lines are not really a trading system for him, but he finds them valuable as a visual representation of the trend. He describes drawing them as an ongoing conversation with the chart. A break above the line, in his view, is not necessarily a trading signal, but it suggests the trend he has identified is changing, since a continuing trend would keep testing the line.

Keller notes that Tesla's RSI broke above 60 this week, which he treats as another way to confirm the break above the 200-day. He says he wants a believable breakout to be backed by stronger momentum if he is going to trust further upside.

He points out that in the July, September and October peaks, the RSI never got above 60, so the indicator had stayed out of what he calls the bullish range. He explains that the RSI compares average up days with average down days over a look-back period, so a reading pushing toward 70 means up days are much stronger, which he says signals optimism and an influx of demand.

At the bottom of the chart, Keller says the relative performance is starting to break out as well. He reads this as Tesla outperforming the S&P 500, and says that breakout confirms the other signals he has described.

Keller says Tesla is a good example of a stock that spent a long time below the 200-day. He says he has learned to wait patiently for a breakout above it, and cites Paul Tudor Jones, who he says famously said nothing good happens below the 200-day.

Keller says that, based on the confluence of resistance, the break above trend line resistance, the follow-through day, improved momentum and improved relative strength, he cannot guarantee Tesla will rise the next day. He says that based on his assessment of the conditions, the breakout looks like a good one, and he would generally assume it goes further up until price indicates otherwise, which he describes as innocent until proven guilty.

Keller says Meta looked vulnerable going into earnings. Its Fibonacci level near $681 failed to hold, and after earnings the stock closed below the 50-day and then, a couple of sessions later, below the 200-day moving average.

He explains his Fibonacci framework: taking the July low and the September high and drawing retracement levels at 38.2%, 50% and 61.8%. He calls the 61.8% level the most important, since it relates to the golden ratio. The drawdown reached about $620, roughly the 61.8% level. If the stock follows through and breaks below both the 200-day and the 61.8% retracement, he says the next downside objective is probably the mid-to-low $500s, retesting the major lows from 2026.

He notes the RSI pushed below 40, the opposite of Tesla's pattern, which he says implies a bearish chart structure. With momentum this negative, he says relative performance has deteriorated pretty consistently. He observes that within his group of mega-cap growth stocks, which he calls Dave's Dirty Dozen, Meta contrasts with the Tesla breakout.

Keller says he has three more charts that are actively testing their 200-day moving averages, starting with the VanEck Semiconductor ETF, SMH. He says the AI trade had a good bounce this week, though SMH had been weak in October. It was around $640 at the start of October, fell to about $520 at the end of the prior week, and was around $560 at the time of the video.

He notes that at the end of last week, when the ETF tested the $520 level, it was only slightly above the 200-day. He says it has remained above the 200-day even after its short-term pullback. He points out that the 200-day lines up closely with a 50% retracement of the March low to the June high. The 38.2% level sits near $550, and the 50% level near $516, which he says is where SMH bottomed at the end of July, so the 200-day and that retracement form a confluence of support.

Keller says that if SMH breaks below $515, it would break the 50% retracement, the 200-day and the confluence of support, and he would expect the next objective near the 61.8% level around $480. He says the ETF is currently in what he calls moving average limbo, sitting below the 50-day but above the 200-day, so the long-term trend still holds while short-term weakness has pushed it below the 50-day.

He lays out three outcomes for the next week or two. A break above the 50-day, around $575, would be a bullish outcome. A break below $515 would be a bearish breakdown. Staying between $515 and $575 he calls neutral, which is why he calls it moving average limbo. He says he would watch which level breaks first, whether momentum validates it, and whether a follow-through day comes after the break.

Keller adds that he set up alerts at these levels using the bell icon on the StockCharts platform and prefers email, text and banner notifications so he does not miss a breakdown.

Keller says some non-technology charts look encouraging. He points to UPS, which reported earnings on Tuesday, October 27. The stock closed back above the 200-day moving average in a big up day.

He describes the path over recent months: a high around $116 in July, a retest of the February market peak, then a decline to the 200-day. In March and May the stock had held the level, but this time it failed to hold it. He calls that classic behavior around the 200-day and a distribution phase. After breaking below, he looked to the left of the chart for prior support and identified the March and May lows near $92 to $93 as a downside objective.

Keller says UPS found support in late September and early October right around $92, at the March and May lows. From there the stock rotated higher, and on the day of the video it closed back above the 200-day for the first time since earlier in the summer. The RSI pushed above 60, which he calls pretty constructive.

He says he wants to see whether UPS gets a follow-through day in the rest of the week, as Tesla did that day. He calls that follow-through crucial for UPS, because it would confirm the move was not a one-day fluke and that optimism persists after the break above the 200-day.

Keller says airlines and cruise lines had moved higher that week, with Carnival, Royal Caribbean and Norwegian all rising. He calls the Southwest Airlines chart noteworthy because its low near $38 is retesting the March, April and May lows, similar to UPS.

He explains that the stock held the 200-day several times in the spring, offering a good entry point, but failed to hold it in August. Now the 200-day has become resistance, and he says he is waiting patiently for a confirmed break above it. The stock closed above the 200-day, which also took it above the late-September and early-October highs. He says that would be a good breakout if it gets validation the next day through a follow-through and RSI staying above 60.

Keller says that for now, the Southwest breakout is good, pending follow-through, and that the RSI staying above 60 is a sign to watch. He says he finds the 200-day helpful as an initial way to measure the long-term trend and that looking at price relative to it is important.

He emphasizes that none of the five charts relied on the 200-day alone. He says the level is part of a bigger technical analysis process that also looks at trend, support and resistance levels, momentum and the follow-through days he has described. He adds that all five charts are worth watching this week to see whether follow-through arrives.

Keller explains that some of the charts were names he had followed through earnings, such as Meta and Tesla, while others came from the StockCharts screener. He describes the steps: go to StockCharts, click Scans and Alerts, open the screener and set the universe to members of the S&P 500. Under the Technicals category he selected the 200-day moving average and chose the condition that price crossed above it.

He says running that scan that day returned 16 stocks in the S&P 500 that had all broken above the 200-day. He suggests starting with the summary tab, grouping results by sector to compare similar companies, and then reviewing charts to find names testing, breaking out or breaking down through the level.