Using Multiple SMA Regressions to Time the Stock Market

Posted in Technical Trading


“Trend Factor and Stock Returns” describes a method of extracting information from stock price simple moving averages (SMA) that is more complicated than that used by most traders. Instead of using current price above or below an SMA as a signal, this method employs offset regressions (normalized SMAs lagged one month behind returns) to project next month’s return based on current SMAs. Does this alternative use of SMAs usefully forecast stock market returns. To investigate, we apply the methodology to predict SPDR S&P 500 (SPY) returns and to predict International Business Machines Corporation (IBM) returns. Using daily dividend-adjusted closes for SPY since the end of January 1993 and for IBM since the beginning of January 1962, both through November 2012, we find that: (more…)

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