In part one , we saw how using the 10 month moving average against the SPY , can help us avoid bear markets. Another way to avoid potential bear markets , is to count the number of stocks in the S&P 100 that are still above their 200 moving average. You can do this by looking for the specific index tracking this data ( S1TH in Tradingiew.com). I first heard of this strategy from Mr. Carlucci. You can read more about it here.
Depending of their risk tolerance, investors may enter and exit the market when a certain percentage of stocks are above or below their 200 ma. For this post we'll use the following rules
BUY SPY if :
SITH > 65 ; 65 % of stocks in the S&P 100 are above their 200 ma
SELL SPY if :
S!TH < 55 ; 55% of stocks in the S&P 100 are below their 200 ma
What would be the results of this strategy ? lets take a look. Since the indicator has been available since 2007, we have limited data for backtesting .
Starting with $100,000 :
Return : 70.2 %
Max DD % : 23 %
Profitability : 75 %
Although the results are encouraging, I would not recommend this as a trading system. However , paired with the strategy covered last month, this could be a powerful tool to determine when to get in and get out of the markets.