Market timing using the S&P
This is a simple, easy to follow and execute, market timing approach
using the S&P 500 index. It involves tracking two exponential
moving averages: the 10-week and 50-week. (What is a moving average?
It is the average of a stock's closing prices over a specified number
of market days. For instance, the 10-day moving average would be the
average of the last 10 days closing prices.)
This is how it works, when the 10-week moving average of the S&P
500 index is above the 50-week moving average, you remain invested
in the stock market. (One simple way to invest in the entire market
is to buy the SPY, which tracks the S&P 500.) When the 10-week moving
average drops below the 50-week moving average, you move your
investments out of the stock market (i.e. you sell the SPY) and into
cash (i.e. a money market fund in your investment account). This is
how it looks over the last 3 years (see here).
If you had followed this plan from 2003 through 2007, you would have
gone LONG (i.e. the 10-week is ABOVE the 50-week) on May 15, 2003, then
waited until December 21, 2007 to go back into CASH. Only two signals
in six years, so this is not high maintenance. Yet you would have remained
in the uptrend throughout most of the move, and averted the horrendous
downtrend which began in 2008.
If you had followed this plan from 1995 through 2000 (a six-year bull
run), you would again have gotten only two signals, and would have remained
entirely long for an amazing climb. The sell signal toward the end of
2000 would have kept you from a disastrous downtrend from November 2000
through May 2003-a two-and-a-half year period!
So how to implement this plan? You simply watch on a daily (or weekly)
basis the following link: SP500chart.
Similar ones can be obtained from other websites like Yahoo Finance
etc. Once you see the 10-week moving average cross ABOVE the 50-week
you are back in the stock market. Whenever the 10-week drops BELOW the
50-week, you are back in CASH. Simple as that.
For a more elaborate description of this technique (published in February
2008) go here.