Market Commentary

Moving Averages as Timing Models

The 200 day moving average is one of the most durable timing models that investors use to get in and out of the stock market. It would have saved you a lot of money if you got out of the market when the index broke below this moving average in the dot-com and financial crashes.

Many technicians feel it is a reliable indicator and today the stock market is near the 200-day moving average for most indexes.

The problem is that yes, it would have worked nicely in the crash years, but it also has given a lot of false signals over the years. If investors strictly adhered to the model they would have gotten in and out of the market numerous times when it did not produce a bear market. It is much more reliable in bear markets and it is impossible to know which signal will result in a bear market until after it is well in place.

 

Timing the market with any certainty is impossible.

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