The quickest way to determine the stock market trend is by using Guppy Multiple Moving Averages. By examining a series of short-term and long-term moving averages, and their relationship to each other, we can very quickly see how the market is performing.
What are Guppy Multiple Moving Averages?
Guppy Multiple Moving Averages are a series of short-term and long-term moving averages plotted on a chart. Invented by Daryl Guppy, they are a great tool to quickly and easily see how a market (or stock) is performing.
Specifically, a Guppy chart includes the following exponential moving averages on a chart:
- Short-term: 3, 5, 8, 10, 12, and 15 period exponential moving averages
- Long-term: 30, 35, 40, 45, 50, and 60 period exponential moving averages
These exponential moving averages are typically plotted as lines on the chart, in two different colours.
Personally, I like to use green lines for the short-term moving averages, and red lines for the long-term moving averages.
How to Interpret Guppy Charts
The key to quickly determining the strength of a trend comes down to how you interpret the Guppy chart. Some people have specific ways of doing this, however there are some common interpretations that are generally accepted:
- If the short-term moving averages are above the long-term moving averages, the market is in an uptrend.
- When the short-term moving averages are moving up through the long-term moving averages, a new uptrend could be starting.
- If the short-term moving averages are moving down through the he long-term moving averages, a new downtrend could be starting.
- The trend is strong when there is a lot of separation between the short-term and long-term lines, as well as each individual line.
- If there is a lot of compression between the lines and there is no clear separation, the market is choppy and not trending in either direction.
How to Quickly Determine the Market Trend
The way I use Guppy charts is to visually get a sense of what the market is doing. I run guppy charts for the following ETF:
- $IWM – iShares Russell 2000
- $DIA – Dow Jones Industrial Average
- $SPY – S&P 500
- $QQQ – Nasdaq
- $VEU – Vanguard FTSE All World ex-US
By quickly glancing at the Guppy chart for each of these tickers, I can get a sense of how the overall market is doing, including the international markets.
What a Good Uptrend Looks Like
A solid uptrend on a Guppy Chart is easy to spot. Have a look at the chart for IWM:
The red and green lines on the far right of the chart are showing the strong market trend in the Russell 2000 that we are currently experiencing.
Notice the following things within the white box on the chart:
- The green lines are moving upwards
- The green lines have consistent separation between them
- There is a large separation between the lowest green line and the highest red line.
- The red lines are moving upwards
- The redlines have consistent separation between them
All of those elements together highlight the strength of the Russell 200 right now.
If you watch the chart going forward, it will be easy to see when the trend starts to break down as the short-term green lines will start to compress and may even start to move down. If and when they start to breach the red lines, then the uptrend is dead.
What a Bad Guppy Chart Looks Like
The chart below shows what the SPY Guppy Chart looked like during the February and March market crash (2020). As you can see, in late February the short-term lines (green) compressed quickly and then dramatically moved through the long-term lines (red).
Not all market shifts act this quickly, but it was easy to see that the market was in trouble.
Today’s Guppy Multiple Moving Averages
In addition to the market breadth calculations I run daily, I also look at the Guppy charts for each of the tickers mentioned above. Here is what each of those charts look like today.
What do they tell you in terms of the market trends we are seeing right now?
