Moving Averages for Non-Traders: How to Tell if a Supplier's or Customer's Stock Is Trending
Many of our market articles say a stock is "above its 50-day average" or "below its 200-day." Those two lines are the simplest way to tell whether a company's shares are in an uptrend, a downtrend or somewhere in between. For a business owner, that is useful context on suppliers you depend on, customers who owe you money and the industries you sell into. This guide explains moving averages in plain language and how to use them without becoming a trader.
What a moving average is
A moving average is the average closing price over a set number of trading days, recalculated every day. The 50-day average smooths out roughly the last ten weeks; the 200-day covers about the last ten months. Because they smooth out the daily noise, they show the direction of the trend. GTA's plain-language guide to simple and exponential moving averages covers the math and the variations.
The four basic readings
Above both averages: an uptrend. Investors have been paying more over both the medium and long run.
Below both: a downtrend. The company or its industry has been under pressure.
Above the 50-day, below the 200-day: a short-term recovery inside a longer slump. Too early to call a turn.
Below the 50-day, above the 200-day: a pullback inside a longer uptrend. Often just a pause.
Golden cross and death cross
When the 50-day average crosses above the 200-day, traders call it a golden cross and read it as a sign a downtrend may be ending. When it crosses below, it is called a death cross. These events get headlines, but they lag: by the time the lines cross, much of the move has already happened. GTA's explainer on the golden cross and death cross signals shows how often they work and when they mislead.
How a business owner can use them
Supplier health: if a key supplier's stock has been below both averages for months, it may be under pressure to cut costs, raise prices or tighten terms. That is a reason to line up a backup source.
Customer credit: a large public customer in a long downtrend is not necessarily a bad credit risk, but it is worth watching payment times more closely.
Industry demand: when rental companies, homebuilders or truck makers move from below to above their averages, it often lines up with improving demand in that industry, which can mean more work for contractors and fleets.
Equipment timing: rising trends across the makers you buy from can come with firmer prices and longer lead times. Falling trends can bring incentives and shorter waits.
Limits to keep in mind
Moving averages describe the past. They cannot forecast earnings, a new product or a recession, and they flip back and forth when a stock moves sideways. Use them as a quick check, alongside news, your own sales data and what suppliers tell you.
Trend readings for hundreds of stocks, along with options flow and dark pool data, are available in the GTA Terminal.
A word of caution
A trend reading is a signal, not a guarantee, and nothing here is investment advice. Decisions about suppliers, credit and equipment should rest on your own numbers and relationships first.
The bottom line
Two lines, the 50-day and 200-day averages, give a fast read on whether the companies around your business are gaining or losing ground. For related guides, see our explainer on support and resistance for business owners and our look at chart patterns for non-traders.
When the trend in your own business says it is time to grow, BFC Equipment Loans finances new and used equipment for contractors, fleets and manufacturers nationwide. You can apply for equipment financing in a few minutes.
Comments