The Average Investor's Blog

A software developer view on the markets

False Alarm – the S&P 500 Latest Sell

Posted by The Average Investor on Aug 3, 2010

At end of May the S&P 500 closed below its 10-month MA, a significant bearish sign. Now, two months later, the S&P 500 closed at the end of July above its 10-month MA, thus, triggering a buy.

Let’s look closer at these trades. Using the opening prices of the following day, the exit would have been at $1,087.30. The re-entry on August 1 at $1,107.53. The whole re-entry business amounts to a “loss” of about 2% of gains. In the meantime, the S&P 500 hit a low of $1,010.91, which amounts to a downturn of another 7.5%. In other words, the 2% missed gains saved us from watching our investment going down another 7.5%.

At the end of July S&P 500 closed also above its 12-month MA (which was penetrated at the end of June) which makes the current signal even more significant.

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