Moving Averages – Indicating Bull Or Bear Stock Markets?

The table below provides a summary of the 50- and 200-day moving averages pertaining to a number of global indices. The orange shading indicates indices still trading below their moving averages and show the percentage gain required in order to reach the moving average line. Conversely, the green shading shows those indices that have already breached the moving averages to the upside and the numbers indicate the percentage decline that will reverse the break.

Click on the table below for a larger image.

The 50-day moving average is an indicator of the secondary trend and has been breached by all the markets on the list with the exception of Copenhagen. However, the longer-term 200-day moving average is of more importance as an indicator of the primary trend. Although it is a lagging indicator by construction, it fulfils a useful role to keep investors on the right side of the long-term trend.

It is important to note that the three conditions must be met in order to flash new equity bull markets, namely (1) the index in question must penetrate the 200-day average, (2) the 50-day average must cross the 200-day line, and (3) the 200-day average must turn upwards.

The current situation is one where a number of emerging markets - China, India, Brazil, Venezuela, Taiwan, South Korea and Chile - have to a greater or lesser extent crossed their respective 200-day moving averages. In the case of China, the 50-day line has also broken the 200-day line.

Studying chart patterns of the various global bourses leads one to conclude that in the case of a number of emerging markets base formations have possibly been completed and that the cycle lows may very well be in. However, as far as mature markets are concerned, the picture remains inconclusive until primary trend indicators turn positive.

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