Risk Management Indicators

The following chart comes from “BigCharts.com,” which is an excellent “free” charting service by the way. Please draw your attention to the 17 and 43 exponential moving averages. These moving averages just might make or save you a bundle of money.

What does the above S&P 500 chart with its moving averages demonstrate and how can it assist you in making investment decisions? First, the 17 and 43 weekly exponential moving averages (EMA) do not cross every week. However, when they do (17 EMA crosses below 43 EMA), investors better take notice! Second, using the 17 and 43 weekly EMA, an investor would have gotten out of the S&P 500 in October 2000 when the 17 EMA crossed below the 43 EMA and stayed out until early May 2003 when the 17 EMA crossed above the 43 EMA and would have been fully invested ever since. Not too bad of an indicator because the investment game is won by “minimizing” one’s losses.

Along with the Halloween Indicator, this indicator has proven to be a real “winner.”