Fool-proof way to time the market?


I've been doing some analysis and looking at previous drawdowns on the S&P. I know people say it's voodoo, but to me it's a way to view risk/reward. I found something that I think could be a very helpful guide to timing the market. Here's how I set up my charts:

  1. Overlay a 12 & 26 EMA on the S&P 500
  2. Put it on a Weekly timeframe (as I imagine most here are long term investors, and we aren't concerned with daily fluctuations)
  3. The cross of the 12 & 26 EMA's are your guide for getting in / out.

Have a look for yourself and make your own opinion:

S&P 500 in 2022 – Notice how the 12 and 26 EMA crossed bearish in late February, with the 12 EMA (blue line) going below the 26 EMA (red line). This is important as we've seen this before.

S&P 500 in 2008-09 In Oct/sept 2008, the same thing happened. You can clearly see it for yourself in this image, but feel free to open Tradingview and checking yourself. The 12 EMA crossed the 26 and went below. They did not cross again (with the 12 coming above the 26) until July 2009.

S&P 500 in 2001-03 In Oct 2000 the same thing happens again. The 12 EMA crosses bearish under the 26 EMA. They did not cross bullish (blue above red) until ~June 2003.

In all these instances, you'll notice the recovery is only confirmed when the EMA's cross over again, with the 12 coming back on top of the 26. Sure you miss the absolute bottom, but you also ensure that you don't buy into a falling knife.

Now some people may say, “well what about March 2020! If you waited for the EMA's to cross bullish you would have missed 35%+ to the upside!”.

My response is that this is 100% true. You would have missed the bottom and some substantial gains. BUT, you guarantee that you aren't buying into a falling knife in this scenario, and while you miss the bottom, you still capture a massive gain overall.

Would love to hear some thoughts on this analysis. For me, it's just a simple way to determine when we're at the bottom. Just wait for the Weekly 12 & 26 EMA to cross bullish again, and you'll be golden. But as long as the 12 is below the 26, you should expect lower lows are coming.


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