Legacy Funds

Liquid – Transparent – Alt Investment Strategies

Long term indicators delineating bull and bear markets

Sometimes distinguishing between a bull or bear market is as easy as a quick glance at a long term chart.  A very straightforward moving average is an 80 week moving average (roughly corresponds to a 20 month moving average).  You can go to stockcharts.com and plot this yourself using their free service.  Basically for starters, you want to plot an 80 week moving average for the S&P 500.  It would look something like this:

SPX 80wma

Can it be that simple, or was this just a coincidence?  OK, let’s try the last bear market to see if it would have saved you from most of the downside and managed to get you back in to participate close to the start of the bull market that followed:

SPX 80wma 00-03

Feel free to experiment with other time periods on your own.  Let’s try 1998-2001:

sp 80wma 98-01

Hopefully by now you are starting to get convinced that something this straightforward can help reveal the long term picture.  There is no forecasting involved, just simply following the market.  Obviously, there are times when getting out and getting back in is going to result in lagging the security if it continues to rise, but that is a small price to pay to avoid the large declines.   For example, in this chart covering 1990-93, you do avoid the drop but may have to get re-invested at a slightly higher price.

SPX 80wma 90-93

Anyway, hopefully by now you are getting the picture(!) and can see that technical analysis does not have to be overly complicated.  Here is a chart going all the way back to the early 1980’s, again same thing:

.SPX 80wma 1980s

Obviously, for better trading results, one can continue to decrease the time frame to get better precision.

Shorter time frames will be covered in future blogs.


May 17, 2009 - Posted by | Legacy Funds | ,

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