Broad Stock ETFs Fall Below Long-Term Trendlines

November 16th at 8:14am by Tom Lydon

Key U.S. stock benchmarks and stock exchange traded funds are dipping below their long-term trend lines, triggering sales by investors and advisors who use moving averages.

The S&P 500 was hovering near its 200-day moving average, but with Tuesday’s drop, the benchmark was over 7 points below, reports Mark Hulbert for MarketWatch. [Investing with ETFs and 200-Day Moving Averages]

The SPDR S&P 500 ETF (NYSEArca: SPY) is 0.5% below its 200-day exponential moving average.

Historical data revealed that the 200-day moving average has been a good indicator of market entry and exit points that would help generate higher returns than sitting idly through the market turns.

In a hypothetical portfolio of the Dow using the 200-day moving average back-tested to the late 1800s, Hulbert discovered that a 200-day moving average portfolio generated 6.7% annualized returns over a 116-year period, compared to a 5.1% return from a buy-and-hold position, excluding dividends, interest on cash and commissions.

Additionally, the trend following portfolio’s risk-adjusted performance was better since it would hold cash and stay out of market volatility when below its 200-day moving averages.

If you are following the long-term trends, the current dips below the the long-term trends should signal investors to start leaning toward a cash heavy position. [An ETF Trend-Following Plan for All Seasons]

SPDR S&P 500 ETF

For more information on tracking investment trends, visit our trend following category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own SPY.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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