SP500 Trading Models and Sell Signals (Part 1)

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.)

 

 

 

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Category: Technical Analysis