A couple of things:
1: You never actually use the max or min notional in your logic.
2: Even though you define "max_leverage", you never use it.
3: On lines 59 and 60 "leverage" and "context.account.leverage" are the same thing so it would be impossible to ever reach a "limit"-you set that in line 53 when you put "leverage = context.account.leverage"
4: If you are infact approaching the leverage limit, your algorithm does nothing but tell you about it.
5: "context.entered_short" is useless because when you open a short position you never use "context.entered_short" at all
6: You never actually liquidate the short position-to do that you need to buy back the shares not set the target position to 0.
7: You do not need the "return" statement at the end.

I'll edit the code to make it what you want one second...

def initialize(context):  
    context.stocks = symbols('AAPL', 'ABT', 'A')  
    context.order_placed = False  
    context.long_leverage = 2  
    context.short_leverage = -2  
def handle_data(context, data):  
    for stock in context.stocks:  
        record(leverage = context.account.leverage)  
        sma = data[stock].mavg(200)  
        price = data[stock].price  
        context.long_weight = context.long_leverage/len(context.stocks)  
        context.short_weight = context.short_leverage/len(context.stocks)  
        if sma > price:  
            order_target_percent(stock, context.long_weight)  
        elif sma < price:  
            order_target(stock, 0)  
        if sma < price and context.order_placed == False:  
            order_target_percent(stock, context.short_weight)  
            context.order_placed = True  
        elif sma > price and context.order_placed == True:  
            order_target_percent(stock, context.long_weight)  

Simply copy and paste this into a blank algorithm.

Thank you so much, this really helped me!

Building on Owen's suggestion, I made a couple more tweaks. I used history() to get the moving average for the last 200 days and added a check for open orders before placing subsequent orders:

def initialize(context):  
    context.stocks = symbols('AAPL', 'ABT', 'A')  
    context.order_placed = False  
    context.long_leverage = 2  
    context.short_leverage = -2  
def handle_data(context, data):  
    record(leverage = context.account.leverage)  
    prices = history(200, '1d', 'price').mean()  
    for stock in context.stocks:  
        sma = prices[stock]  #index into the prices for each stock  
        price = data[stock].price  
        context.long_weight = context.long_leverage/len(context.stocks)  
        context.short_weight = context.short_leverage/len(context.stocks)  
        if get_open_orders(stock):  
            continue  
        if sma > price:  
            order_target_percent(stock, context.long_weight)  
        elif sma < price:  
            order_target(stock, 0)  
        if sma < price and context.order_placed == False:  
            order_target_percent(stock, context.short_weight)  
            context.order_placed = True  
        elif sma > price and context.order_placed == True:  
            order_target_percent(stock, context.long_weight)  

len(context.stocks) what does that bit of code do? Also Alisa when I backtest your code it doesn't place any orders at all

Hello, len basically returns the length of a specific string. in this case, the string is context.stocks.

May be this will work.
I have changed the logic on opposite and did some magic touch.