The Average Investor's Blog

A software developer view on the markets

Archive for May, 2010

S&P 500 in Bear Trend

Posted by The Average Investor on May 29, 2010

It is official – S&P 500 closed the end of May below it’s 10 month SMA (Simple Moving Average).

Initially I was introduced to the 10 month MA by the The Ivy Portfolio which is one of the top reads on my list. It is used in the book to illustrate that a simple market timing strategy can lead to significant improvement of returns.

Using this timing strategy, the last position should have been opened on July 1, 2009 and closed on this coming Tuesday (Monday is a holiday). Using the index opening price of July 1 and the index closing price of May 28, this position would have returned a respectable 18% (S&P 500 can be traded by using SPY ETF).

Date In Price In Date Out Price Out Gain/Loss
2002-04-01 1147.39 2002-05-01 1076.92 -6.14%
2003-05-01 916.92 2004-08-01 1101.72 20.15%
2004-11-01 1130.20 2007-12-01 1479.63 30.92%
2009-07-01 920.82 2010-06-01 1089.41 18%

Looking at the run after the bear market bottom in 2003, this could be a false alarm. In fact, the S&P 500 still closed above it’s 12 month SMA, which managed to keep one fully invested all the way from 2003 until 2008. While the 10 month SMA had some false alarms on the way.

Long term market timing strategies usually recommend moving to safe heavens for the duration of the bear market period. Based on historic data from the 50s, staying out of the S&P 500 down trends performs better then going short even without adding the fixed income that can be generated!


Posted in Market Timing, Strategies, Trades | 3 Comments »

More Turbulence

Posted by The Average Investor on May 16, 2010

At the beginning of last week I closed some long positions and pulled out the shorts, just to see them hit stop losses and close a day or two later for a loss. Now it looks likely I will be re-opening those long positions. Which one was the false alarm (the downswing before or the upswing last week) – only the time will tell. Certainly it looks like an undecided market, which may turn costly for trend following strategies.

Posted in Trades | Leave a Comment »

A Crazy Week

Posted by The Average Investor on May 7, 2010

The markets have been just going down relentlessly. Accordingly, I got two sell signals from my system.

First, the emerging market trade got closed due to a stop loss. The loss there was 5.8% (my real loss was bigger, but that’s because I forgot to renew my stop loss with my broker), and that’s after being a positive trade for a while. I’d like to take another look at my strategy for the emerging markets, thus, no short position was opened.

The US REIT finally switched into sell territory. I have been itching to sell this one for a while (and to pocket as much as 70%), but decided to stick to my system. Unfortunately the last few days have erased a decent portion of the gains (these ETFs move like rockets), still I made about 41% on this trade. I also immediately took a short position by buying DRV (3X Bear US REIT).

All my trades can be found in the archive. If you haven’t noticed, there is a link in the top of the page.

I’d expect a few other instruments which I follow to turn into short territory and I have no problem shortening the market at this point. More action likely next week.

Posted in Trades | Leave a Comment »

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