50 years to nowhere

[erik_kosberg]

http://cbs.marketwatch.com/news/stor...7D&siteid=mktw

The recent decline of the Nikkei Stock Average has brought it to within a few points of its 50-year moving average of 9,070. "To understand what this means," the Nikkei points out, " imagine the case of a 50-year old investor who has purchased every month since his or her birth one share that represents the Nikkei average. If the Nikkei breaks under its 50-year moving average, the hypothetical investor will see any unrealized gains earned in the past 50 years completely wiped out."

[mjfrombuffalo[$]]

Color me dense, but could you explain this in English?

[erik_kosberg]

A moving average (often used for stock prices) reduces the volitility of prices over time (there’s a longer “sort of English” explanation here). Many market technicians believe that when the current price of a stock goes from below the moving average to above it, that the stock price has an upward bias (and vice versa). Moving averages can be used over any length of time, market traders tend to most often use 50- or 200-day moving averages. The 50-year example from the CBS Markeywatch example is extreme. The fact that the current values might move below the 50-year moving average is an indication that the Japanese market has been in a loooooong period of bad times and that even buy-and-hold long-term investors have lost money, not even accounting for inflation.

[mjfrombuffalo[$]]

I think I'll stick to throwing darts at the Mutual Fund pages of the NYTimes

[kurt_messick]

The problem with darts is when the whole market average is down like this, so are (overall) all of the stocks and funds that are part of it.

[erik_kosberg]

Here’s another example of long-term (in this case, 50-and 200-week gold price) moving averages. A market technician looking at it would probably say that the 50 line crossing upwards through the 200 would indicate a high probability of an upward bias going forward. Of couse, technical analysis by itself might well give false signals. If it was 100% accurate, none of its practitioners would ever lose money.