This indicator, designed to delineate the long-term trend, may have finally escaped months of whip-saw action.

Note that the blue line (ROC252) is elevated farther above the red line (ROC5) than it has been in over 7 months.

Backtesting this indicator over all SPY history returns an annualized gain of 11.56%. If traded long only, it returns an annualized gain of 9.13% with a maximum drawdown of -19%.

Below is the equity curve of the indicator trading only the long signals.

It may be hard to believe, but we could be witnessing the start of a long bull market.

Starting to get some distance between the ROC252 and ROC5.

The system is down -0.5% for 2012. Not great, but remember this was started as a long-term trend following method. Watching it handle lots of whip-sawing and volatility in real-time has been interesting…

Still, if the ROC252 can manage to stay above the ROC5 during the next pullback, we may be seeing the emergence of a long-term trend signal on the long side. I’m not saying the signal will be correct. But it’s the first one that’s emerged since November 2011.

As of the 2.8.12 close, the ROC5 indicator signaled a short entry on SPY.

Since 12.08.11, the indicator has opened and closed 5 trades. Of those 5 trades, 1 closed flat, 3 were closed for losses, and the most recent long trade was closed for a profit. In short, the whipsawing has not been easy for the indicator. You may or may not remember that the indicator was developed as a long term trend indicator, but over the past 4 months or so, it has not been able to discern a strong trend.

The chart below shows the recent trades. Red down arrows are short entries. Green up arrows show the long entries.

Historically, it is rare for the indicator to be whipsawed for an extended period of time. It has been very interesting to watch in real time, although I’m beginning to believe that it will not be a very good short-term indicator. Only (real)time will tell.

This thing is flipping more than hamburgers in a McDonald’s restaurant with rat-filled bags-o-buns.

As of Friday, it flipped again, to short.

A quick glance at the history of this indicator with SPY shows that this is fairly unprecedented. I keep thinking it must decide on a direction, soon. Perhaps I’m wrong?

Actually, there was one other instance of this (see the two yellow circles) but it was early in the SPY history, so I’m not sure that it deserves a great deal of significance.

This thing is flip-flopping more than the GOP Presidential Candidates.

It closed its open long trade at the close on Tuesday, December 20th and opened a short position. The long position was closed for a miniscule loss.

The short trade is showing a small loss at this point.

The arrows show the short and long trades.

More information on this indicator can be found here.

This indicator is really not geared to be used for short-term trading, but it has done really well this year.

I missed writing about the cross on Thursday evening due to the Sewing Machine Installation. The indicator would have had you long at Thursday’s close. The short trade was closed for a quick profit of +0.82%

The first cross of 2011 was on 9.30.11. Trading that cross and every cross since then produces an annualized return of 9.95%. Five out of the six trades in 2011 have been winners. SPY, year to date is down -0.79%.