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 below its average price for the past 50 days, it is considered to have broken below its short-term trend. This is bearish because it means that every new buyer of the stock is paying less than the average price paid for the past 50 days.

Market observers who believe that they can foretell the future of a stock from its past price movement are called "technical analysts" or "technicians." They believe that the 50- and 200-day moving averages form lines of "resistance" that owners of stocks are loathe to penetrate on the way down. Once the battle between a stock’s bulls and bears at these lines of resistance is lost by bulls, technical analysts believe that stocks have a clear shot at sinking toward new lows.

By itself, however, a 50-day moving-average breakout is not a reason to sell or hold a stock. It is just a clue that the stock is in less demand than it was over the past 50 days, and is therefore being bid down 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 Chart and enter a symbol. Then use the Analysis menu to select one of the Moving Averages.

If the stock continues to fall below the 50-day moving average, the next line of resistance is its 200-day moving average. A breakout below that level is another bearish indicator that the trend will stay down.