A trend following strategy for the SP500 that utilizes the 40 week moving average and a filter constructed from the trends in gold, CRB Index, and yields on the 10 year Treasury gave a sell signal 2 weeks ago. The sell signal was two consecutive weekly closes below the 40 week moving average.
This is a strategy that I have chronicled in great detail here, here, and here. Currently, inflation expectations, as measured by our filter, remain low so that is a positive for equities. However, with prices still below the 40 week moving average this strategy remains on hold.
As a quick refresher, since 1973 this strategy has yielded 1400 SP500 points; buy and hold netted about 1050 SP500 points. There have been 73 trades and only 2 trades had losses greater than 5%. Your market exposure was approximately 60%. In essence, with this strategy, you would have achieved a return 30% greater than buy and hold with 40% less market exposure and with significantly less risk.
(Editor’s note: no intent here to make a late market “call”; when this sell signal occurred, there were similar signals that told the same story.)
Category: Technical Analysis
Sites That Link to this Post
- SP500 Trading Models and Sell Signals (Part 3) : thetechnicaltake | August 25, 2011
- SP500 Trading Models and Sell Signals (Part 4) : thetechnicaltake | August 25, 2011