How about that Templeton Growth Fund, eh? After some lacklustre years, things may be looking up.
Just a couple of months ago, the unit price of this behemoth global equity fund crossed its 100-day moving average. Next stop: The 50-day moving average. If Templeton Growth crosses that, then this fund could be on a real tear.
Moving averages are a tool of technical analysis, an investing discipline that interprets the price and volume movements of a stock or, in some cases, a fund in order to discern future trading behaviour. Most of technical analysis is incomprehensible unless you take the time to really study it. Moving averages are a little different in that you can quickly and easily manipulate them so that they offer clues on whether your stocks and funds may be headed up, down or sideways in the future.
Moving averages for stocks are available on a number of investing Web sites, including Globeinvestor. Now, GlobeFund offers investors unique access to moving averages for funds as well. To look at a fund's moving averages, just use the charting option available on all fund profiles.
You can pick any three moving averages to look at on Globefund., but a typical exercise would be to use 50- and 100- or 200-day numbers. Next, you'd pick the timeframe for your analysis, say one, three, five or 10 years. To start, let's take a look at the 50-day moving average for Templeton Growth over the past 10 years. Click the “Go” button and you'll see average monthly average unit prices for 50-day periods ranging back to 1993.
A 50-day moving average gives you a clue about a stock or fund's intermediate-term potential. In Templeton Growth's example, you'll see that the unit price is rising, but it hasn't yet crossed the line on the chart tracing the 50-day moving average. If the unit price were to cross the moving average line, that would be a bullish signal for the fund. The 100- or 200-day moving average gives a longer-term view of the fund's possible behaviour. Templeton Growth crossed its 100-day moving average in August, which is a positive signal.
Moving averages work on the way down as well. A declining trend, especially where the unit price falls below the 50-day moving average, is a bearish signal that might suggest selling.
For fund investors, moving averages are most useful when applied to sector funds that tend to rise sharply and then plunge in a way that can strip unwary investors of their gains. Moving averages might help you time your entry into a sector fund, and give you an exit point.
Don't rely on moving averages alone, because they can sometimes provide false signals. For example, the unit price of Templeton Growth fell below its 50-day moving average in the summer of 2001, only to bounce right back before plunging far below the 50-day line several months later. The fund has been drawing ever closer to its 50-day average lately — will it cross the line and stay there? Stay tuned.
Tips & Tricks
How to View a Fund's Moving Averages
1) Click Chart on the black bar at the top of any globefund.com page.
2) Use Option A to generate a chart for a fund in your Fundlist or Option B to generate a chart for any fund you wish. A fund chart will appear.
3) Below the chart, among the options titled "Generate new chart", you will now find the option to display moving averages. Enter up to three moving averages in the fields.
4) Click Go to generate the chart with moving averages.
rcarrick@globeandmail.ca© 2007 The Globe and Mail. All rights reserved.
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