Life has been busy and has kept me away from blogging, and from trading, mostly. Still, I can’t stay away from monitoring the markets, and, with the recent rally, I started asking myself – has the situation changed since the 200 day SMA signaled an exit. What do you think – make up your mind before reading further.
Making up once mind before looking at the technical is a valuable approach to analyze one’s emotions in a rational way. To tune the gut feeling in other words.
Now back to the S&P 500. The answer to the question is – it depends. Let’s rerun the R script:
require(quantmod) # Download data spy = getSymbols("SPY",from="1900-01-01",auto.assign=F) # Confirm the SMA situation first spy.sma = runMean(Cl(spy), 200) mm = merge(Cl(spy), spy.sma, all=F) ind = mm[,1] >= mm[,2] print(tail(ind,4)) # 2015-10-20 FALSE # 2015-10-21 FALSE # 2015-10-22 FALSE # 2015-10-23 TRUE # Yep, buy on the Friday's close # Compute the returns rets = ROC(Cl(spy),type="discrete") # Compute the adjusted returns adj.rets = rets/sqrt(runSum(rets*rets,10)/9) # The moving average sma = runMean(adj.rets,n=200) ind = sma >= 0 print(tail(ind,4)) # 2015-10-20 FALSE # 2015-10-21 FALSE # 2015-10-22 FALSE # 2015-10-23 FALSE # Nope, no action based on the returns SMA
We closed above the 200 day SMA. On the other hand, the more robust, and better historically, approach, which uses normalized returns, continues maintaining a cautious position.
Make your mind and act accordingly – who said trading is easy.
Best of luck!