Stock Market Timing Using Historical Moving Averages

by admin on August 4th, 2009

In the wake of the recent stock market drops, there has been a increased amount of interest in certain market timing systems that would have told an investor to be “out” of the market during late 2008 and early 2009. Below are a sample of the more popular mechanical systems, which have clear parameters and are easy to follow using basic investing tools.

100-Day Moving Average (FundAdvice.com)
FundAdvice.com is run by Merriman Capital, which provides money management services using both buy-and-hold and market timing models. I’ve mentioned them before for their index fund model portfolios and the related “Ultimate” Buy-and-Hold Portfolio. The website has an entire market timing section, and I am specifically referencing the articles here and here from 2001 and 2002.

Merriman recommends something called the 100-day moving average. For any given asset or mutual fund, you calculate the average of the most recent 100 days of closing prices. Each day, you’ll have a new average by adding the newest price and dropping the oldest price from the average. Then, you compare the current price of the fund with this simple moving average (SMA).

Each day the market is open, if the current price is above the 100-day SMA, you should buy the fund or hold it if you already own it. If the current price is below the 100-day SMA, sell it. After you sell, place your proceeds in (read more)