Let’s dive into this week’s indicator: moving averages in technical analysis.
What’s a moving average, you ask? It’s simply a way to smooth out the ups and downs in stock prices, giving you a clearer view of the trend.
Here’s how it works: imagine you’re tracking the daily closing price of a stock. A moving average takes the average of those prices over a set number of days—like 50 or 200—and plots it on a chart. Each day, the oldest price drops off, and the newest one is added, so the average “moves” along with the stock.
So, how do we use this? One popular method is to see if a stock’s current price is above or below its moving average. If it’s above, that’s a sign of an uptrend; if it’s below, it could signal a downtrend.
In the chart above, we’re looking at four major U.S. stock market indices—the S&P 500, Dow Jones Transports, Dow Jones Utilities, and the Nasdaq—and comparing them to their 50-day and 200-day moving averages.
When an index is above its 50-day moving average, it’s like the market saying, “I’m feeling pretty good in the short term.” But if it’s also above the 200-day moving average, it’s more like, “I’m in it for the long haul.”
Here’s the good news: right now, all four indices are cruising above both their 50-day and 200-day moving averages. The sweet spot!
This suggests that the market isn’t just strong—it’s strong across the board. From tech stocks in the Nasdaq to transportation and utilities, everything’s pushing higher.
While no single indicator gives the full picture, this alignment across the board is a promising sign for investors. It reflects a healthy market, with broad-based momentum across various sectors—a positive signal by any measure.
The best-case scenario? This technical strength keeps building, the economic environment stays steady, and investor behavior remains rational. Together, these factors create the ideal recipe for strong market returns.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.
The Dow Jones Transportation Average (DJTA) is a stock market index that tracks the performance of 20 leading transportation companies in the United States.
The Dow Jones Utility Average (DJUA) is a stock market index that tracks the performance of 15 prominent utility companies in the United States.
The NASDAQ Composite is a stock market index that tracks the performance of over 3,000 companies listed on the NASDAQ stock exchange, primarily consisting of technology and growth-oriented companies.