What happens when the S&P 500 spends over 100 days above its 50 day moving average, and then falls beneath it? Is this a buying opportunity, or is it time to go to cash?
Background information: On March 9th, the S&P 500 had been trading above its 50 day moving average for 130 consecutive days. Since 1960, this has occurred only 8 times. On March 10th, the S&P 500 closed beneath its 50 day moving average.
The Rules:
- Buy if S&P 500 has been trading above the MA50 for 100 days or more and today it closes beneath the MA50.
- Sell X days later.
- All buys and sells made at the close.
- No commissions or slippage added.
- Testing begins in 1960.
Results:
First, I added additional factors to the test to see what happens with a larger sample size. There were 18 previous instances of the $SPX trading above its MA50 for 75 or more days and 51 instances of 50 or more days.
What jumped out at me was that the the next day’s returns are good for the 75+ and 100+ models at 0.37% and 0.82%, respectively. The win rate for the next day’s returns is high at over 77% for 100+ days and over 63% for 75+ days or more.
Past history shows that a significant bounce usually occurs almost immediately following this setup.
Results at the intermediate time frame of 50 trading days are soundly bullish.
Also looks like you should always looks like a pullback about 14 days out? Are these trading days or calendar days (on the chart, not the sample)?
Trading days only on the chart.
Keep in mind that the 50+ has all the 75+ and 100+ trades included and the 75+ has all the 100+ trades included. Looks like there was one trade with a big pullback near the 14th day in either the 75+ or 100+ sample.
And, note the spike near the 26th day. Again, likely one trade that had a huge move.
I am always liking these. They have all generally turned up bullish to benign results, I note.
Did I ever miss one fo these type of studies that predicted a market dump?
Not many. The market tends to go up. There was the one a month or so ago about Dow vs. Nasdaq that was bearish.
Trends tend to keep trending.
Believe me, I look for reasons to be bearish.
Woodshedder!
We are stats brothers…lol. Nice work my friend!
Is that better than or worse than eskimo brothers?
Thanks, I think. What’s a stats brother?
Oil seems to be a factor more over in the last 3-5 years only….now it seems the fear “building into the new Saudi Shooting on demnstators tonight.!!…….Means ??,,,Need to corralate oil into this equasion ?
OR
Does all past history corralate so well that only tecknical factors and past history are Truly Requited because there is ALways Some Issue?? bounch back gumby … sorry about the speling..
AUD?USA Diving ..! missing this short! see ya ,,,,,,,,,,,,,,,,,,,,
Are the charts worthless since money is being artificially pumped into the system?
Seriously, this is like the Sammy Sosa, Mark McGuire home run derby. Captured everyone’s attention and it was fun to watch, but it was a fraud, just like when Slim Pickens kicked a door in a fake town in Blazing Saddles and the whole facade of the fake buiulding fell down. “It’s a Fake!”
130 days of trading above the 50, now below it, will it bounce? Of course it will, POMO starts again next week.
Tree, so you are 100% long then, right?
What about the other 8 times when this happened. Was there POMO then? I understand what you are saying but it doesn’t make the charts worthless.
I am 100% long across the board and extremely long gold/silver plays as long as they are intent on buying back bonds that were issued 1 week prior and other nonsense. I made moves based on charts in 2009 and 2010 that made complete sense but got slaughtered because I didn’t know the extent the game was rigged. As long as there is an average of $4B being pumped into the markets every day, who in their right mind would fight that current? Much easier to get on the raft and float with the current than to get into a canoe and try to go upstream.
Maybe the 8 other times you mentioned the action was justified. Right now, it is my opinion that there is no justification for the S&P to trade 130 days above the 50DMA, given the current economic climate and the only reason it is, is because it’s being artificially supported.
Just BTFD.