A potentially favorable signal for the S&P 500

Key points

• A trading signal combining the percentage of S&P 500 stocks above their 10-day moving average (crossing above 40%) with the 50-day moving average residing above the 200-day moving average historically yields a 72% win rate over a two-month holding period.
• Adding a momentum confirmation filter-requiring the spread between the 50-day and 200-day averages to be rising (ROC1 > 0)-boosts the two-month win rate to an impressive 79%.
• Despite the strong technical setup, bearish September seasonality and recent hawkish Federal Reserve signals advise caution, as signals triggered specifically in August have historically exhibited weaker performance.

A potentially favorable signal

If the market rebounds quickly and heads higher, buying during a market decline can be profitable. The problem is that not all declines are created equal (the risk of "catching a falling safe"). Observing upward reversals within a sustained uptrend may reveal profitable opportunities. Using the percentage of S&P 500 stocks above their 10-day moving average, we look for crosses above 40%.

At the end of the report, we will explain how to recreate this test using Backtest Engine 2.0. By using the new version of the Backtest engine, users can recreate this