Email of the day on moving averages on daily charts
Comment of the Day

September 14 2020

Commentary by Eoin Treacy

Email of the day on moving averages on daily charts

I trust this message finds you hale and hearty.

Your recent article on moving averages (50 MA, 200MA) showed these on daily charts.

As a rule, I was under the impression that these MAs applied only to weekly charts, especially the 200MA to indicate the trend mean.

Eoin Treacy's view

Thank you for this email and thank you for the well wishes. I’ve long admired and followed your regime of overdosing on fruits and vegetables which I am convinced has played a role in my resilience to illness over the decades. I’ve never had to take a day off for personal illness.

Unfortunately, the air quality in Los Angeles at present leaves a lot to be desired. The Bobcat fire is about 30 miles away and there has been very little wind. The October fires were only three miles away and the smoke blanketed us. These ones are not as bad, for me, but the air justifies wearing a mask outside regardless of the additional risk of coronavirus contagion.

Turning to moving averages. We have always focused on weekly charts because historical perspective offers valuable insight into the overall trend that is easily lost with daily charts. However, I posted daily charts last week to highlight where the levels are relative to the current prices. On our charts the calculation of where the moving average resides will be the same on a daily, weekly or monthly chart.

The trend up from the March lows is very much its own beast. The move on Wall Street has been characterised by strong momentum. It has been punctuated by mild reactions and found support in the region of the 50-day moving average on repeated occasions. Today offers an additional example.

Investors are betting the market share gains achieved by the stay-at-home sector will be permanent and that the flow of liquidity will kick in when required indefinitely. Nothing has occurred yet to challenge that conclusion. Meanwhile, optimism about the release of a vaccine continues to point towards multiple approved products by the end of the year.

The number of articles I have seen referencing the 50-day MA has increased substantially over the last few months. That suggests it is now the focus on attention for traders wishing to buy the dip.   

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