The most important trend-following tool for growth stock investors is the simple 50-day moving average. You should own growth stocks that are in uptrends above it, and you should welcome opportunities to buy when those stocks correct down to that 50-day moving average. (It’s usually best if that average is rising.)
The 200-day moving average, by contrast, is of little use for long stretches of time. In long bull markets, stocks can trade well above their 200-day moving average for more than a year.
But in major corrections—and even bear markets—the 200-day moving average can be the most valuable moving average of all. That’s because just when all the news seems darkest—just when investors begin to feel that all is lost—the 200-day moving average pipes up and says, “Hey, this looks like a terrible time to sell; perhaps you should think about buying!”
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They say a picture is worth a thousand words, so let’s take a look at the following stock charts.
The 200-Day Moving Average, in Six Charts
The Dow Industrials
The S&P Midcap (MDY)
The S&P 600 (Small Cap)
The NYSE Composite
The S&P 500 (Large Caps)
The Nasdaq Composite (Growth Stocks)
As you can see in the charts above, five of the six indexes are trading below their 50-day lines, while mid-caps are the only segment trading below the 200-day moving average.
Small caps are also “riding” their 200-day line as they work to recover from an ongoing correction.
The recent bounces in the NYSE Composite and Dow are highlighting the rotation we’ve seen play out this month, which is largely responsible for the “headline” S&P 500 and Nasdaq indexes holding near their highs despite a lot more weakness under the surface.
The question now is whether “everything else” can sustain the bounce (ideally with a recovery in mid-caps and small caps), or whether the under-the-surface weakness will become more widespread and pull down the market in the aggregate.
Given what looks like a failed test at the 50-day lines for the Dow, Nasdaq and NYSE Composite (although the Dow is still too close to call), a more conservative approach is in order as we head into the end of 2026 and await an end to this uncertainty.
So, for now, we’ll be keeping an eye on our favorite indicators and looking for stocks that are showing signs of resilience, as those are likely to be the next market leaders when the trend turns back up.
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*This post is periodically updated to reflect market conditions.
