V.10:8 (332-335): Moving Average Crossovers by Arthur A. Merrill, CMT

V.10:8 (332-335): Moving Average Crossovers by Arthur A. Merrill, CMT
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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.

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