Yesterday SPY closed beneath the 20 day moving average. For most of 2012, SPY has traded above this average. Is there any edge to buying SPY on a close that crosses either below or above the 20 day average?
The Rules:
Buy SPY at the close if
- the close crosses below the 20 day moving average
OR
- the close crosses above the 20 day moving average
Sell at the close X days later. No commissions or slippage included. All SPY history used.
The Results:
Well, the average performance does not go into the red, so that is a good thing. As for any edge, there doesn’t seem to be much benefit to buying a cross (in either direction) of SPY and its 20 day moving average.
The setup doesn’t do much of anything for a couple of months (~40 trading days).
The reverse setup (buying a cross above the 20 day moving average) under-performs buy-n-hold over the same time period.
During a strongly trending market (such as all of 2012) the 20 day average works well, keeping one long to ride the trend. However, as the market consolidates or pulls back, trading around the 20 day average just whipsaws the trading account. If one could accurately determine when a new, strong trend had started, there would likely be an edge to being long when SPY is above the 20 day moving average.
