Wrong and Misguided
Bill King on moving averages, via The Big Picture:
There is mucho pontificating by research types and pundits that ‘all is still well because the S&P 500 held its 200-day moving average. These people are wrong and misguided.
Long-time readers know that we regularly assert that the slope of the moving average is of paramount importance and breaches that are contra to the moving average trend carry no significance unless it is a monumental breach that will soon change the moving average trend.
Our veteran readers also know that we price the 252-day or 50-week (yearly) moving average over the 200-day. We have also noted that research by Richard Dennis from almost 30 years ago shows that commodity trends are best described by the 350-day or 70-week moving average. Dennis’s legendary ‘Turtle’ system uses the 350-day moving average as a filter, or discipline, in initiating trades.
Major stocks indices on this rally rallied above downward sloping 200-day moving averages. But they did NOT rally above downward sloping 252-day or 350-day moving averages.
(The chart of the S&P 500 with 200-day, 252-day and 350-day moving averages shows) seven false breaches during the rally from mid-2002 to 2007.
It’s clear that the 200-day moving averages, especially breaches contra to its trend, are grossly over-rated events. Historical charts verify this notion.
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