In all of SPY history, there have only been 8 occurrences of the ETF trading above its 50 day moving average for 75 days or longer. Once it closes beneath the 50 day moving average after trading above it for such a long stretch, is it is good time to buy?
On April 10th, SPY closed beneath its 50 day moving average after trading above it for 75 days. This type of pullback to the major moving average is a popular setup with technical analysts, but is there actually an edge to it?
The Rules:
Buy SPY at the close if
- it trades for X days above its 50 day moving average
- and then closes beneath the 50 day moving average
Sell SPY at the close Y days later.
No commissions or slippage included. All SPY history used.
The Results:
The results for >49 days above the 50 day moving average are solidly bullish. The results for <50 days above are neutral to bearish, considering the average gain for SPY over any 50 day period is 1.54%.
Sample Size Matters:
- >10 and <25 = 26 samples
- >24 and <50 = 17 samples
- >49 and <75 = 12 samples
- >74 and <100 = 5 samples
- >99 = 3 samples
While sample size for the >49 days above data sets is limited, I tend to discount this as I see it representing strong momentum, which has a proven edge.
What I like about this study is that while there is undoubtedly some overlap, the results look completely different from my recent study about a pullback from new highs.
