Moving Average Crossovers
by Arthur A. Merrill, CMT
Are moving average crossovers more effective than other indicators? More specifically, how about
moving average crossovers applied to the Dow Jones Industrial Average? S&C contributor Arthur
Merrill decided to research the question using weekly data for the last 24 years, checking out crossovers
with a four-week exponential moving average and with 13-, 26- and 52-week exponential averages. Here
are his results.
One of the earliest technical tools, as easy to figure with pens and paper as well as with computer later
on, was a price chart and a moving average with a simple set of instructions: When the red line crosses
over the blue line, buy!
I have wondered just how good the Dow Jones Industrial Average (DJIA) crossovers were in forecasting
the future of the DJIA itself. When the DJIA is above its 26-week average, what are the prospects for the
future? Would it be better to watch the four-week average compared with the 26-week? How about the
other possible crossovers?
Intrigued, I decided to put the question to my computer, and the results are in Figures 2 through 6. I
wanted to look at the weekly data bank for the last 24 years, and I decided to divide the 24-year period
into two 12-year tests. The first would cover 1968 through 1979. The results for this period are the
left-hand bar in each pair. The second period covered the years from 1980 through 1991. These results
are reported in the right-hand bar of each pair.