Within a few days, there will likely be much ado about the 50 day simple moving average crossing back above the 200 day simple moving average on the SPX. This is a well-known technical signal and many pundits are likely to begin mentioning it.
I decided to test its past effectiveness, if for no other reason than to be able to have an intelligent discussion about the event, should it present itself for discussion. Secondly, my bias has been intermediate term bearish, and I want to be prepared to shift towards a more neutral or even bullish bias, if warranted.
The Results:
100K Starting Equity; No Commissions or Slippage; Returns are Re-invested.
Rules, buy the next open after the 50 day sma closes above the 200 day sma. If a long position is held, sell the next open after the 50 day sma closes below the 200 day sma.
I boxed in the metrics that I think are more interesting.
Of most importance is the fact that it beat buy-and-hold. Secondly, a Golden Cross on the SPX often marks the beginning of a very long trend as the average winning trade is held 5x longer than the average loser. The high win % is notable, too.
Not to over-simplify, but this is a juicy setup for the buy-and-hope crowd.
The Equity Curve:
More Research on Trading With the 200 Day Average:
Mebane Faber’s World Beta (This is fantastic research; a MUST read)
Thanks. It’s good to see we long term traders can also bank coin.
URRE crossed yesterday. Sham Wow!
Nice one Wood.
It reminds me of my 50DaySPY system:
http://www.ibankcoin.com/peanut_gallery/index.php/2009/04/02/50dayspy-a-profitable-slow-motion-swingtrade/
$100,000 1960 dollars converted to 2008 dollars
$726,883.86 using the Consumer Price Index
$581,742.54 using the GDP deflator
$865,890.69 using the unskilled wage
$1,608,550.82 using the nominal GDP per capita
$2,709,840.43 using the relative share of GDP
Given that the first levels of the 200ma are from August 2008 (around 1200) and the 50ma are from March31(around the 800 level), is it reasonable to think that the probabilities are very high, unless there’s as huge drop in the price?
Cheers, Cordura
Cordura, probabilities of a cross? I’m not sure exactly what you are asking.
Yeah, that the ocurrence of the cross is almost certain, unless the 1 day moving average 😉 starts going south very fast. Because even at a -1% daily return there will be a cross in 10 days aprox.
Great Info!!! I only play this game for the last half hour of the trading day to make a determination as to whether to get in or out with a Profunds Index. As I have to be in for at least a day, a golden cross would definitely help!
Hey Woodshedder – can you add to the system a short factor? Meaning – you also enter s short position on a cross down…
I’m very curious to see how it affects the performance/equity.
Thx!
X-ray, sure, that’s something I was considering. I’ll run that sometime next week, probably just in time for the actual cross 😉
Thanks for the suggestion.
Good work, Wood. Thanks for the heads-up.
Just discovered your blog and looking at previous posts. Great stuff sir!
I get the same as you for the SPX. I just ran it on the NDX 100 for the last 10 years. 46% winners but a very large gain.