To calculate a short-term moving average for a stock, we simply add up its closing price for the past 50 market days and divide by 50. For a longer-term picture of the stock’s trend, we add up all the closing prices for the past 200 market days and divide by 200.

When a stock’s current price breaks above its average price for the past 50 days, it is considered to have broken its short-term trend. This is bullish because it means that every new buyer of the stock is willing to pay more than the average price paid for the past 50 days.

Market observers who believe that they can foretell the future of a stock from it past price movement are called "technical analysts" or "technicians." They believe that the 50- and 200-day moving averages form lines of "resistance" that are difficult for a stock to penetrate on the way up. Once these lines of resistance are penetrated, however, technical analysts believe that stocks have a clear shot at rising toward new highs.

By itself, however, a 50-day moving-average breakout is not a reason to buy or hold a stock. It is just a clue that the stock is in greater demand than it was over the past 50 days, and is therefore being bid up in price. Technical analysts believe that these kinds of trends tend to continue, all other things being equal.

It’s much easier to conceptualize the notion of moving averages on a chart. To see charts, click Money on the top navigation bar. On the horizontal navigation bar, click Investing and then click Stocks. On the left bar under the Quote, Chart, News heading, click Charts and enter a symbol. Then use the Analysis menu to select one of the Moving Analysis.

Watch next to see if the price penetrates the 200-day moving average. If it does, technical analysts would consider that to be a bullish indication that further advance is likely.