The Average Investor's Blog

A software developer view on the markets

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!

Advertisements

3 Responses to “S&P 500 in Bear Trend”

  1. […] EMA vs SMA: A Curious Observation Jul 1, 2010 The Average Investor Leave a comment Go to comments Last month the S&P 500 closed below its 10 month Simple Moving Average (SMA). In a previous post, I stated that taking this position would have netted a gain of 18%. […]

  2. […] of the last trading month of May, S&P 500 was below it’s 10 month MA (see my previous postS&P 500 in Bear Trend). Back then, I commented that the S&P 500 was still above the slower, 12 month MA. Not anymore. […]

  3. […] S&P 500 Latest Sell Aug 3, 2010 The Average Investor Leave a comment Go to comments At end of May the S&P 500 closed below its 10-month MA, a significant bearish sign. Now, two months later, […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: