Fig. long term behavior of S&P500
I've mentioned previously that it seems S&P500 tends to reverse to its mean when an extreme deviation occurs.
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)
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