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IFTA JOURNAL<br />
2017 EDITION<br />
most notable similarity was that the first two markets we<br />
studied—arguably the two most widely followed indices from a<br />
U.S. vantage point (S&P 500 and the Morgan Stanley Emerging<br />
Markets Index)—had very similar results. For both, the average<br />
and median decline from the 20-month moving average sell<br />
signal outperformed all other signals. The most striking<br />
difference was the variation in the results between those<br />
aforementioned indices and the other indices we tested, such as<br />
the Nasdaq Composite, the Hang Seng and the Nikkei.<br />
Other than for the S&P 500 and Emerging Markets, there was<br />
little uniformity in the most effective sell signal for equities.<br />
The data from those indices argues that it is the 20-month<br />
moving average sell signal, while the data from the other<br />
markets is mostly scattered between the 30-month moving<br />
average and 40-month moving average signals. That could<br />
be the result of the Nikkei’s poor long-term performance and<br />
the vicious bear markets endured by both the Hang Seng and<br />
Nasdaq Composite.<br />
Speaking of vicious bear markets, the most bizarre data came<br />
from the continuous commodity index, but not the individual<br />
commodities we studied. There was almost no difference<br />
between the four sell signals for the continuous commodity<br />
index. The four signals ranged from 6.3% to 6.6% for average<br />
decline and from 2.8% to 4.1% for median decline. Both highs<br />
were from the 20-month moving average signal.<br />
Meanwhile, data from Gold and Oil showed no similarity<br />
to each other or that from the larger commodity index. The<br />
20-month moving average sell signal produced the highest<br />
number for both the average decline and median decline. Gold<br />
was the true outlier in the study as it was the only case where<br />
the 40-month moving average sell signal produced the highest<br />
number for both the average and median decline. And it wasn’t<br />
even close.<br />
Ultimately it is foolish to think that any single moving average<br />
is uniform as the best or most effective sell signal. It depends<br />
on the market being studied, its history, and what stage that<br />
market is in. For example, breaking the 20-month moving<br />
average is more significant if it occurs after an aging bull market<br />
than if it occurs when the market is trying to bottom after a<br />
well entrenched bear. The data shows it is more significant if it<br />
occurs in the S&P 500 or a market with broad constituents like<br />
the MSCI Emerging Markets Index as compared to an individual<br />
index that tends to have greater swings. We can say that our<br />
data makes a strong case that depending on the market, either<br />
the 20-month moving average or 30-month moving average is a<br />
better sell signal than the 10-month moving average.<br />
References<br />
Faber, Meb. “Paul Tudor Jones on the 200-Day Moving Average.” Meb<br />
Faber Research. N.p., Nov. 2014. Web. 28 Mar. 2016. http://mebfaber.<br />
com/2014/11/06/paul-tudor-jones-on-the-200-day-moving-average/<br />
Grimes, Adam H. “Does the 200-day Moving Average “work”?” Adam H Grimes.<br />
N.p., Oct. 2014. Web. 27 Mar. 2016. .<br />
Hulbert, Mark. “What Breaking the 200-day Moving Average for Stocks Really<br />
Means.” MarketWatch. MarketWatch, Oct. 2014. Web. 27 Mar. 2016. .<br />
Notes<br />
1<br />
Hulbert, Mark. “What breaking the 200-day moving average for stocks really<br />
means.” MarketWatch., October 14, 2014.<br />
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