In my last post I tested a number of dual moving average strategies on the DFM General Index to determine the most profitable performers.  Using the test results I selected three of the highest returning strategies whose moving average lengths were reasonably distinct.

In this post I want to take a quick look at what these dual moving average strategies are signaling right now and what this might mean for the DFM General Index over the coming weeks.

Here are the three dual moving average strategies overlayed on the DFM General Index price chart:




The Bad News

As you can see from the charts above all three short-term moving averages (red lines) are below the long-term moving averages (green lines). 

As a reminder, a dual moving average strategy initiates long positions (i.e, predicts prices will rise) when the short-term moving average crosses above the long-term moving average.  Long positions are maintained whilst the short-term moving average remains above the long-term moving average. 

Given that the short-term moving averages are below the long-term moving averages in all the strategies above this doesn't look particularly bullish for the DFM General Index.  And historically it hasn't.  In fact, when this has happened in the past it's been particularly bearish for the market.




The chart above show the result of buying the DFM General Index when the short-term moving averages for all three strategies were below the long-term moving averages.  As you can see, pretty ugly results. You'd have lost over 80% of your capital doing this with an average daily return of -0.34% compared with +0.01%  for all DFM trading days.

So, from a historical perspective, with all the three dual moving average strategies like they are at the moment, we have to be very cautious about the prospects for rising prices on the DFM General Index.

The Good News?

As you may have spotted already, the short-term moving averages in two of the three strategies above are very close to crossing over the long-term moving averages.  In both the 10/55-day and 115/150-day dual moving average strategies buy signals could be generated in the near future.  If this happens (with the emphasis on "if"), then things would start to look better.



The red line in the chart above shows the resulting P&L of buying the DFM General Index when the short-term moving averages are greater than the long-term moving averages for both the 10/55-day and 115/15-day dual moving average strategies.  Much better than the previous chart I'm sure you'll agree.

I'll update this on a weekly basis or sooner if there's one or more dual moving average crossover signals.

Enjoy.