Odds & Ends

Positive & Negative Crosses!

50 & 200 Day Moving Averages

DYI:  By going to Yahoo.com/financial you easily set up 50 and 200 hundred day moving averages as I’ve done for DYI’s 4 asset categories.  The reason I use ETF’s is to negate as much as possible any capital gains that would distort the moving averages.  Also as with any indicator there is never a perfect one.

 

Be as that may be, the idea behind this is sound; when the 50 day moving average breaks above the 200 day that is positive for stocks or long term bonds to advance [bull market] in price or conversely when the 50 day moving average breaks below the 200 day moving average stocks and long term bonds are set to decline [bear market].

Of course as stated earlier it is not a perfect indicator with what is called a “Head Fake” just like in basketball the player with the ball fakes with his head [throwing off his opponent] but continues on his same path to either shoot or pass the ball.  The analogy is this, the 50 day may break above or below for a few short weeks or months but only to return to its original path.  However it does not do this the point of paralyzing this investment method.

Vanguard ETF Long Term Bond Negative

Symbol BLV

DYI:  Vanguard’s ETF Long Term Bond fund has thrown 3 head fakes since 2014 however going back to 2009 till January of 2014 the 50 day moving average remained solidity above the 200 day for a bullish trend.  The long term bond market since January of 2014 has remained trendless simply treading along the same price range.

Vanguard ETF Total Stock Market Positive

Symbol VTI

DYI:  Since January of 2011 the 50 day crossed into positive territory and has remained solidity in the bullish camp despite on a historical valuation stand point stock are massively overvalued.  Simply put rank speculation has driven stocks higher along with a very complicit and accommodative Federal Reserve.

SPDR Gold Shares Positive

Symbol GLD

DYI:  Gold shares were in a rip snorting bull market from 2009 till October of 2013 when the 50 day average dropped below the 200 day average signifying the end of that bullish trend and then entered into a brutal bear market clipping share prices from peak to trough of around 70%+.  However since January of 2017 the 50 day average has remained, admittedly by its finger nails, above the 200 day average.  Whether this will hold is anyone’s guess as historical valuations with gold at its mean signifying precious metals mining companies share prices could easily go either direction.

Vanguard ETF Short Term Bond Negative

Symbol BSV

DYI:  When dealing with short term bonds when the 50 day average breaks below the 200 day this is signifying the Fed’s have begun raising interest rates.  Since the bonds are of such short duration around 2.5 years as interest rates increase many of the bonds will mature continuously over the 2.5 years as this happens the money manager will simply replace the matured bond [at the new higher interest rate] with a similar duration thus increasing the yield that the fund pays.

 

Bluntly when the 50 day drops below it is negative but positive for the fund overall as you are now able to compound at a higher rate.  Since the fund has price movements that are very small.  DYI uses a short term bond fund as over the long term will out perform a money market fund while only increasing the risk to a small degree.  And of course when it positive the Fed’s are lowing rates so over the longer term the fund will compound at a lessor amount.

Since August of 2013 the 50 day broke below the 200 day as the Fed’s began increasing rates with only one minor head fake from September of 2016 and then resumed its negative path on April of 2017 and has continued that direction solidly till today.  So far the Fed’s have been stating they want to continue increasing rates so as time rolls on our short term bond fund will compound at higher rates.  The history of the Fed’s is they will increase rates till the economy goes soft or outright recession then they will reverse sending rates downward aggressively!

 DYI