A Discounted View

“You always want to be with the predominant trend. My metric for everything that I look at is the 200-day moving average.” – Paul Tudor Jones Being able to determine the market’s primary trend will put the odds in your favor to properly position your portfolio for future events. There are many ways to accurately identify a trend, however using the 200-day moving average* is one of the simplest yet most effective strategies. In fact, most Trend Following firms employ trading strategies that take an entry and, possibly, an exit based on a specified percentage close above or below the 200-day moving average, respectively. Moreover, the 200-day moving average can be an effective trading signal for all markets since Trend Followers are typically registered as Commodity Trading Advisors (CTA’s) that have exposure to equities, fixed income, currencies, as well as commodities. Additionally, the 200-day moving average has been an effective signal throughout many market cycles. One s...

After the August 2015 sell-off the broad-based indexes found support and pivoted higher before month-end. However, by the latter half of September 2015 more selling pressure came into the market pushing the price of the S&P 500 Index (SPX) down to a near retest of its August 2015 lows while moving the value of the Russell 2000 Index (RUT) to new lows.  Even though the price action of these two indexes differed, the behavior of each respective Moving Average Convergence Divergence (MACD) Indicator was the same. Specifically, both MACD’s formed a higher low in late September 2015 after the August 2015 low was formed. Given the aforementioned similarities, MACD conveyed a powerful underlying message. In the case of RUT we observe that divergence formed between the lows of the price and the lows of the MACD lines. That is, as RUT formed a lower-low by the end of September 2015 its MACD was making a higher-low which is indicative of future price strength. MACD is categorized as a ...