Systematic Trader’s will use the 50 day Simple Moving Average as their trading plan. The 50 day moving average is a good trading plan for indexes and ETF’s that have trend following characteristics. It can produce disastrous results if used for every index or ETF.
Other widely followed moving averages are the 100 day moving average and the 200 day moving average. Some money managers will use these moving averages with a shorter moving average and use the cross of the shorter moving average above or below the longer moving average to generate trading signals. The goal of two moving averages and even 3 moving averages is to eliminate whipsaws that often occur with moving averages as a technical analysis indicator.
Why should you care about the signals produced with the 50 day moving average? There are so many people using the 50 day moving average, that we will often see extreme volatility in indexes when they cross both above and below the 50 day moving average.
The below chart shows the current 50 day simple moving average condition on the 40 most actively traded ETF’s. (A “1” indicates above the 50 day SMA, a “0” indicates below the 50 day SMA. The Percent column shows Percent above)
| Security Name | Above 50 | Below | Percent | Ticker Symbol |
| DB Commodity Index | 1 | 0 | 1.0483 | DBC |
| Diamond Trust DOW | 1 | 0 | 1.0446 | DIA |
| Energy Select SPDR | 1 | 0 | 1.0118 | XLE |
| EWY | 1 | 0 | 1.0116 | EWY |
| IPath India Index | 1 | 0 | 1.0417 | INP |
| IShares 25 Index | 1 | 0 | 1.0352 | FXI |
| IShares Australia | 1 | 0 | 1.0226 | EWA |
| IShares Basic Materials | 1 | 0 | 1.0528 | IYM |
| IShares DJ Real Estate | 1 | 0 | 1.0195 | IYR |
| Ishares DJ Transportation | 1 | 0 | 1.0156 | IYT |
| IShares Germany | 1 | 0 | 1.0083 | EWG |
| IShares Hong Kong | 1 | 0 | 1.012 | EWH |
| IShares Latin America | 1 | 0 | 1.061 | ILF |
| IShares Mexico | 1 | 0 | 1.0367 | EWW |
| IShares MSCI EAFE | 1 | 0 | 1.0042 | EFA |
| IShares Pacific ex Japan | 1 | 0 | 1.0209 | EPP |
| IShares S&P 500 Growth | 1 | 0 | 1.0333 | IVW |
| IShares Silver | 1 | 0 | 1.0806 | SLV |
| IShares Taiwan | 1 | 0 | 1.0154 | EWT |
| IShares United Kingdom | 1 | 0 | 1.0361 | EWU |
| NDX 100 | 1 | 0 | 1.025 | QQQQ |
| Pharmaceutical Holders | 1 | 0 | 1.013 | PPH |
| S&P 500 | 1 | 0 | 1.0252 | SPY |
| SPDR Consumer Descretionary | 1 | 0 | 1.0339 | XLY |
| SPDR Consumer Staples | 1 | 0 | 1.0397 | XLP |
| SPDR Gold Shares | 1 | 0 | 1.0987 | GLD |
| SPDR Healthcare | 1 | 0 | 1.0499 | XLV |
| SPDR Indutrial Sector | 1 | 0 | 1.0309 | XLI |
| SPDR Materials | 1 | 0 | 1.0379 | XLB |
| SPDR Metal & Mining | 1 | 0 | 1.0493 | XME |
| SPDR Technology | 1 | 0 | 1.0314 | XLK |
| US Oil | 1 | 0 | 1.0315 | USO |
| IShares Financial Sector | 0 | 1 | 0.9912 | IYF |
| IShares Mid Cap 400 | 0 | 1 | 0.9989 | IJH |
| IShares MSCI Japan | 0 | 1 | 0.9455 | EWJ |
| Ishares S&P Small Cap 600 | 0 | 1 | 0.9833 | IJR |
| IShares South Africa | 0 | 1 | 0.9938 | EZA |
| Oil Service Holders | 0 | 1 | 0.9772 | OIH |
| Semiconductor Holders | 0 | 1 | 0.9863 | SMH |
| SPDR International Real Estate | 0 | 1 | 0.9884 | RWX |
| SPDR Mid Cap | 0 | 1 | 0.9986 | MDY |
| SPDR S&P Homebuilders | 0 | 1 | 0.9694 | XHB |
The week ending November 20, 2009 saw the largest number of the 40 most actively traded ETF’s below the 50 day moving average since the end of October 2009. The drop in late October was followed by almost all of the above ETF’s going back above the 50 day moving average. The result of taking indiscriminate trades for all assets that went below the 50 day moving average caused losses from the resulting whipsaw. We will be watching next week for changes of either more indexes breaking down or if those below can once again gain enough strength to continue their uptrend.
You should not trade any systematic trading plan without proper back testing and analysis of the trading characteristics of the index, stock or ETF you are trading.
This is a snap shot and you should be aware that this condition can and will change any day in the future.
We monitor the 50 day moving average daily along with a number of other systematic trading plans.
There is No “Holy Grail” in trading systems. Do not use the 50 day SMA or any other systematic trading system without proper research on the asset.
For questions on systematic trading, contact mark@seleznovcapitaladvisors.com
