10-Month SMA Timing Signals Over the Long Run
March 18, 2013 - Technical Trading
Current price versus 10-month simple moving average (SMA) is a widely used indicator of asset and asset class trend, with current price above/below its 10-month SMA viewed as bullish/bearish. How has this indicator performed for U.S. equities in aggregate over the long run? To investigate, we employ the long-run data set of Robert Shiller to construct a very long backtest of 10-month SMA crossing signals. This data set includes monthly levels of the S&P Composite Index, calculated as average of daily closes during the month. This method of calculation deviates from that most often used for SMA signals, but arguably suppresses the effects of the turn of the month and any other monthly patterns on SMA signals. Using S&P Composite Index levels, associated dividend yields and contemporaneous long-term interest rates (comparable to yields on 10-year Treasury notes) from the Shiller data set spanning January 1871 through December 2012 (1,704 months or about 142 years), we find that: Keep Reading