I will selectively recap what that is:
This particular indicator says:
- Long-term Buy signal if: 20-weekly moving average on the Index goes up OVER the 50-weekly moving average by 1% from UNDERNEATH.
- Long-term Sell signal if: 20-weekly moving average on the index goes down UNDER the 50-weekly moving average by 1% from OVERHEAD.
Now here comes the NEWS. There is GOOD news and BAD news for BEARS following this LT Signal.
I am intrigued at what point, WITHIN ONE QUARTER from May 1, 2008, does the 20 WMA crosses over the 50 WMA, and thus reversing the SELL signal into LT-BUY signal ?
There are basically several scenarios - SEE CHART BELOW - that I consider, and (please don't ask too much details for now), probability of those as implied by SPY Aug option prices. There are things that don't exactly fit any of the description but I "managed" to lump them in one category or the other (and don't ask me how, either).
I also showed:
- the end of period SPY prices for each scenario, and
- a chart showing 50WMA minus 20WMA (see that the last cross was mid January into LT-SELL, and you can see several projections: ONLY two of them (2% weekly decline and 3% weekly decline over the Qtr, resulted in a crossing).
The Good news: Within the next 3 months, it is UNLIKELY that the LT-SELL signal will change into a LT- BUY signal
The Bad news: It would, for the most part, be like chinese water torture, watching paint dry, and unprofitable expedition for inexperienced Bears.
Look at what happened to BEARS in HIGH probability EVENTS:
- Whipsaws (the last two scenarios), and
- FLAT (the first scenario)
Not only do you NOT make money, the signal will also be getting close to cross into LT-Buy.
You are trading $$$! Not trading Signals.
You (BEARS) could be right about the signals.
BUT - 75% of the time, as my estimate indicated, you WONT make much money or even lose.(That's basically the same as 75% of the time the Bulls are wrong about anticipating the signal to turn into LT-BUY, but they wont lose anything or even make a bit of money!!!!)
This is the where the truest of the true and nimblest of the nimble will rise, while wannabees and emotional, political, religiously motivated people, will FAIL.
Disclosure: The predictive ability of that 20WMA/50WMA is very good, which is why I bother spending some time in looking at it in-depth. Hope you find something useful.