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Strategists at UBS recommend using momentum indicators as an input to distinguish between favorable and unfavorable market conditions though the 200-DMA indicator also has its drawbacks when compared to a buy-and-hold strategy.

See:

S&P 500: Do not chase recent gains, focus on cyclical sectors – Morgan Stanley

S&P 500: 5-10% pullback before market rally continues toward the 3386 all-time high – Charles Schwab

Key quotes

“The dynamic asset allocation strategy would have hypothetically helped to reduce downside risk to a maximum 12-month loss of 23%, versus 43% for a buy-and-hold investment in the S&P 500 over this period.”

“The strategy would have been less consistent than it appears, underperforming a simple buy-and-hold investment in two-thirds of all 12-month periods, by an average of 4%. The saving grace is that when the timing strategy outperformed, it did so by an average of 10%.”

“This timing mechanism would have switched its allocation 48 times in 40 years. Many of these trades were ‘false positives,’ failing to add value. For example, from 2010 to 2019, it would have signaled 10 trades, despite there being no bear market. These ‘whipsaws’ would have led to cumulative underperformance of 49% during those final years of the bull market rally.”

 

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