As of 04/24/2024
Indus: 38,461 -42.77 -0.1%
Trans: 15,078 -358.61 -2.3%
Utils: 893 +6.79 +0.8%
Nasdaq: 15,713 +16.11 +0.1%
S&P 500: 5,072 +1.08 +0.0%
|
YTD
+2.0%
-5.2%
+1.3%
+4.7%
+6.3%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/24/2024
Indus: 38,461 -42.77 -0.1%
Trans: 15,078 -358.61 -2.3%
Utils: 893 +6.79 +0.8%
Nasdaq: 15,713 +16.11 +0.1%
S&P 500: 5,072 +1.08 +0.0%
|
YTD
+2.0%
-5.2%
+1.3%
+4.7%
+6.3%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
This article discusses how to use the 12-month moving average to detect bull and bear markets.
Pictured above is a line chart of monthly closing prices of the S&P 500 index along with a 12-month moving average of those closes (shown in red).
Notice that during the start of the 2000 to 2002 bear market, the index dropped below the moving average at A. That was a signal to sell and move into cash. In the 2007 to 2009 bear market, the index also dropped below the moving average (at B). In both cases, the index remained below the moving average until the recovery began at C and D.
If you were to use the 10-month moving average instead of the 12, price would pierce the average in the blue circle and also along the CB move at the first touch. Those would have caused an unnecessary transaction (buy then sell, or the reverse), so a 12-month simple moving average works better. The slightly longer simple moving average will get you back into the market slightly later at C and D than would the 10-month simple moving average.
If you were to test this, make sure you use monthly closing prices and not the highs or lows during the month. You'll find that the moving average reduces draw down and risk over buy-and-hold.
Here are the trading rules.
I asked Dr. Tom Helget to run a simulation on the S&P 500 index from January 1950 to March 2010. The following table shows a portion of his results.
| SMA | Net Profit | Compound Annual Return | Risk Adjusted Return | Max. Trade Drawdown | Win/Loss Ratio |
| 6 | $2,600.06 | 5.63% | 8.81% | -$324.59 | 47.14% |
| 7 | $2,737.78 | 5.71% | 8.79% | -$331.93 | 53.23% |
| 8 | $3,830.62 | 6.29% | 9.63% | -$357.87 | 60.78% |
| 9 | $4,002.73 | 6.36% | 9.65% | -$338.68 | 60.42% |
| 10 | $4,680.93 | 6.63% | 10.21% | -$382.17 | 63.41% |
| 11 | $5,240.50 | 6.83% | 10.58% | -$461.67 | 67.57% |
| 12 | $6,275.78 | 7.15% | 10.95% | -$478.05 | 67.74% |
| 13 | $5,606.37 | 6.95% | 10.62% | -$449.63 | 71.43% |
| 14 | $5,196.39 | 6.82% | 10.35% | -$555.73 | 76.92% |
Here is what he says about the test.
My test ran from 1/3/1950 to 3/31/2010 (20,515 days or 56.17 years) on ^GSPC. Trades were taken when the close crossed above the n period monthly simple moving average on the open of the day after the signal. Positions were exited when the close crossed below the same n period simple moving average on the open of the day after the signal. I allowed for fractional shares to be purchased. My starting value was $100. The periods of the monthly simple moving average ranged from 6 to 14.Optimization revealed the best performance to be the 12-month SMA with a Compound Annual Return of 7.15%. If one were to buy on 1/29/1954 (the date of the first trade generated by the system) and hold to the end date the CAR would have been 7.36%.
You can download a copy of his spreadsheet results by clicking on the link.
-- Thomas Bulkowski
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