NEW YORK (CNN/Money) - Technical analysts -- those market players who, in the steaming entrails of the market's past performance, believe they can predict its future -- have been a happy lot lately.
All sorts of the things they like to look at have been flashing buy signals lately. Stochastics, candle sticks, Bollinger bands, momentum indicators, you name it, they suggest the market's long winter may finally have come to an end.
But more than anything, it's the way the big indexes have poked their heads up, groundhog-like, above their 200-day moving averages that's infected the chart watchers with spring fever. And because the 200-day average is such a stately old indicator, even investors who normally focus on valuations and the like have been catching the bug.
The 200-day moving average is just that -- an index's average close over the previous 200 days, plotted out day by day, on a chart. What it gives you, as a result, is the index's underlying long-term trend. When the index's price remains below its moving average, it suggests that the trend is down. But when it goes above it, it suggests that trend has broken.
It can, Aeltus Investment Management strategist Jim Griffin wrote recently, "be interpreted as a sort of digestion function, an indicator of how far along the market might be in getting used to a particular set of developments, such as those we have endured in this so-far benighted millennium."
It suggests to Griffin that, absent fresh shocks, the market won't be such a scary place anymore.
Maybe more important than what the 200-day moving average is supposed to mean, however, is that investors -- even fundamentally-oriented ones like Griffin -- think it means something. It can become something of as self-fulfilling prophecy: The belief that the market's all-clear signal has sounded can be tantamount to the all-clear signal getting sounded.
As a result, there are dangers, too. If the indexes drop back below their moving averages, investors may conclude that what they thought was the light at the end of the tunnel was instead an oncoming train. None of the widely-watched market measures are so far above their 200-day trend lines that this couldn't happen. And the Dow Jones Industrial Average, is sitting right on the mark.
-- Justin Lahart is a senior writer at CNN/Money covering markets and investing.
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