The 200 Day Moving Average and the End of the Bear Market

Of all of the technical indicators that market technicians look to, the 200 day moving average is universally viewed as a sign of whether is going up or whether it is going down. It is the average price of whether a market has traded over the previous 200 days. When an indices falls below this line, it is often said to be in a bear market, and when it is above the line, it is said to be in a bull market.

This morning, all major US, European and Asian markets crossed their 200 day moving average. Markets had not traded across the 200 day moving average in over 18 months, although they did get close to the average about this time last year.

Many market observers have hailed this as a new bull market, and of course we will not know whether this signals a new market until some time has passed.

I believe that it is likely that the market will respond to the breach of the 200 day moving average by moving about 5 to 10% higher in the immediate term. There is just too much money on the sidelines for that not to happen.

However, over the intermediate term, I would not attach too much significance to this indicator. During the 1930's and during Japan's 1990's, the market frequently moved across its 200 day moving average, only to fall back below for long periods of time, and even hit new lows.