Thursday, July 28, 2011

Long term price deviations indicative for stock indexes, not so much for currencies or commodities

Fig. long term behavior of S&P500


The first potential buy signal is generated when price deviates more than 20-30% from the 250 days moving average.

There are two more indicators worth observing for long term signals:
  • relative standard deviation (SD) - i.e. standard deviation / average
  • long term nominal change - i.e. change of the price over 250 sessions (more or less one year)
In the case of relative SD, a buy signal is generated when the indicator exceeds 0.3.

Another buy signal emerges when price drops -40% / -50% over a year.

What's interesting, a weak signal also appears when a price increases by 50% over a year. There were very few instances of such a situation, though.

You can observe similar long term relations for other stock indexes, such as WIG20 (Warsaw Stock Exchange, Poland):

Fig. long term behavior of WIG20

The picture is not so obvious for currencies and commodities, though:

Fig. long term behavior of EURUSD

Fig. long term behavior of gold futures


No comments: