The Most Widely Watched Indicator in the Market

The 200-day moving average of prices is probably the most widely-watched indicator in the market.

Like many popular indicators, there’s nothing special about it other than the fact that it’s so widely-watched. Its popularity gives it something of a self-fulfilling prophecy effect.

Still, the beauty of the indicator is its simplicity. It creates an agreed upon line in the sand. If a stock’s price is above the average, most investors get bullish. If it’s below, the market gets bearish.

It’s a layman investor’s question — are stocks trading bullish or bearish? And a layman-style answer — yes or no.

It’s a “quick ‘n dirty” measure of the market.

And it’s also suggestive of how stable an index — like the S&P 500 — is while making gains. That’s because, if a large portion of stocks are above that average, it demonstrates the market’s underlying strength… investors are motivated to buy a wide swath of individual stocks.

But when fewer than 50% of the stocks in an index are above the 200-day moving average, it can be a signal that investors are cherry-picking just a small handful of individual stocks. And that can indicate underlying weakness, making it a challenge for the broad index to carry on higher.

So when the percentage of stocks over their 200-day moving average falters, I pay closer attention because that is often an early warning sign.

The 50-day moving average works the same way, only it’s an indicator geared toward a shorter timeframe.

With that in mind, here’s a weekly chart of the S&P 500, along with an indicator showing the percentage of stocks currently trading above their 200-day moving averages (white) and the percentage of stocks currently trading above their 50-day moving averages (blue).

See larger image

As you can see, 82.5% of the stocks in the S&P 500 are now trading over the 200-day line in the sand. An equally strong 81.4% are also trading above their 50-day moving average. This is a bullish sign.

What’s more, the indicator is trending upward, now reaching its highest level in 2014. This is happening alongside a new all-time high in the S&P 500 itself, so it provides confirmation of the market’s underlying strength.

Watching these indicators closely, which I will, should provide early warning signs of underlying weakness… whenever that develops. But for now, these indicators are about as bullish as they get and we should maintain a bullish bias in the near term.

Harry Dent’s Most Disturbing Prediction in Years

Harry Dent, one of the most respected economists in the industry, has uncovered a disturbing market event that could soon devastate millions of investors. In short, he has undeniable proof that one of the market’s safest and most popular investments is about to get slaughtered… and it will have dire consequences for those who don’t prepare right away.

For full details on the event Harry’s dubbed as the “Safe-Asset Slaughter”… and to ensure you escape the coming carnage, I urge you to watch this special presentation.

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Categories: Investing

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.