Moving Averages: Month-End Preview
Doug Short | Dec 31, 2012 12:21AM ET
Here is a preview of the monthly moving averages I track on the last business day of the month. All three S&P 500 strategies are now signaling "invested" -- unchanged from last month. However, the distance above the monthly moving average is in the yellow warning zone for all three. Likewise all of the Ivy Portfolio ETF 10-month moving averages are signaling "invested", but DBC (the PowerShares DB Commodity Index), is above the 10MA by the least possible margin: 0.01 point. In the 12-month MA variation of the strategy, DBC is fractionally below the MA.
Positions that are less than 2% from a signal are highlighted in yellow. In this month's preview, several carry the yellow alert.
Given the likely volatility triggered by the Fiscal Cliff negotiations on the last day of the month, we could see multiple sell signals at the close. However, the possibility of a market-friendly post-December 31st agreement on Cliff issues increases the possibility that any sell signals could be whipsaws.
Note: My inclusion of the S&P 500 index updates is intended to illustrate a popular moving moving-average timing strategy. The index signals also give a general sense of how US equities are behaving. However, for followers of a moving average strategy, the general practice is to make buy/sell decisions on the signals for each specific investment, not based on a broad index. Even if you're investing in a fund that tracks the S&P 500 (e.g., Vanguard's VFINX or the SPY ETF) the moving average signals for the funds will occasionally differ from the underlying index because of dividend reinvestment, which is not factored into the index closes.
The Ivy Portfolio
The second of the three adjacent tables previews the 10-month SMA timing signals for the five asset classes highlighted in monthly moving average feature with charts to illustrate.
The bottom line, as I've pointed out earlier, is that these moving-average signals have a good track record for long-term gains while avoiding major losses. They're not fool-proof, but they essentially dodged the 2007-2009 bear and captured significant gains since the initial buy signals after the March 2009 low.
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