Gold cross confusion
S2N spotlight
Let me set the scene for those not familiar with the technical term of a “golden cross.” It is when the 50-day moving average crosses above the 200-day moving average—capiche?
I came across this research doing its rounds in multiple newsletters and X threads today as the talking heads announce a golden cross on the S&P 500.
Every single time frame makes money on average. Remember these averages take 50 years to replicate. I am not sure most people really contemplate the law of averages; however, I have digressed. While this seems like a good “signal,” we have to do a more complete analysis to answer that question.
This is by no means a complete analysis, but moving away from averages that see each trade as independent, we will focus on a sequential backtest.
Here is the question. The golden cross strategy produces a total return of nearly half a buy-and-hold strategy. Importantly, but too often ignored, the golden cross produces a superior risk-adjusted return with a Sharpe ratio of 0.66 versus 0.55.
To drive the difference home more explicitly, you can see the difference in the chart below.
I leave you with the question, which one do you prefer? By now you should know which one I prefer. If you're not sure, reply to this email, and I will walk you through it.
S2N observations
I came across this data point yesterday and took note. The work-from-home phenomenon and the likely downscaling of the corporate workforce are no doubt having an effect on the office property market. Watch this space (excuse the pun; that was a good one.
S2N screener alert
The Taiwan Dollar strengthened against the US Dollar strongly yesterday. I somehow missed that huge move a few weeks ago—wow!
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Author
Michael Berman, PhD
Signal2Noise (S2N) News
Michael has decades of experience as a professional trader, hedge fund manager and incubator of emerging traders.
