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The issue with long term moving average crossovers as trades

January 14, 2013

14 January

Yesterday, I showed that InterActiveCorp resumed its underperformance, following a long term moving average crossover. The pair moved sideways through most of December, frustrating if you have it as a trade, only to reassert sharply in the New Year.

Here is what has happened to some moving average crossover trades that I showed in September.

These were closed in early November (two at break even, one for a small gain), as they did not make progress and I did not want a profit to run into a loss.

Since then, long term top formations have continued to develop.

Autozone (AZO) v Nextera Energy (NEE)

Azonee_macd_140113

Fall of 11.8% for the ratio since 25 September

O’Reilly Automotive (ORLY) v Nextera Energy (NEE)

Orlynee_macd_140113

Fall of 0.1% for the pair since 25 September

Autozone (AZO) v Edison International (EIX)

Azoeix_macd_140113

Fall of 9.1% for the pair since 25 September

Conclusions

  • Following moving average crossovers that meet my criteria, it can take months for the trend change to develop, including moves against the trend change
  • If they don’t work, they don’t have a very quick way of letting you know
  • They are not suitable directly as trades but can be used for long term allocation decisions
  • For a practical trading use, they can inform trades that are more quickly resolved, such as with the Japanese stock pair of Kubota (KUB) v Nippon Telegraph & Telephone (NTT), which recently achieved a 20% gain.

 

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