Buy Signal: Trend Following Strategy

Our trend following strategy that utilizes the 40 week moving average and a filter constructed from the trends in gold, crude oil, and yields on the 10 year Treasury has given a buy signal.

On Friday, prices on the S&P500 closed above their 40 week moving average. Our indicator constructed from the trends in gold, crude oil, and yields on the 10 year Treasury is favorable for equities. This indicator is shown in the bottom panel of figure 1, a weekly graph of the S&P500. The recent buy and sell signals from this strategy are also noted on the graph.

Reasons to liquidate this position include: 1) two consecutive weekly closes below the 40 week moving average; or 2) the indicator (i.e., filter) gets into the extreme zone.

Figure 1. S&P500/ weekly

I have reviewed this strategy in great detail, and if you would like to understand the trading characteristics of this trend following strategy with a fundamental filter (to weed out the bad signals), please go to the following articles:

Developing A Trading Strategy (Part 1)

Developing A Trading Strategy (Part 2)

Developing A Trading Strategy (Part 3)