index investing using SMA

Let's consider 3 methods of investing based on market indices.

We use the 3 years' chart as of Oct 9, 2011 (approximate values used). 14 market indices are used.

A - buy an index when its 30 week simple moving average (SMA) crosses above the 50 week SMA and sell the index when the opposite occurs

B - buy an index when its 50 day SMA crosses above the 200 day SMA and sell the index when the opposite occurs

C - buy an index when its 50 day SMA crosses above the 200 day SMA and sell the index when the opposite occurs but with the 200d SMA turning down

Our benchmark is D, the three year return as of Oct 2011 (approximate).

We see that method B & C have the superior performance compared to A (in green). However both underperform the benchmark for 10 indices (in yellow). This is especially for the emerging markets.

However if we took 4 years instead of 3 years, the results might have been very different. Each method would probably have outperformed the benchmark since they would have avoided the bear market of 2008.

Using method B & C would yield about 10% per annum (including US) over a 3 year period. 4 markets (ASX, TW, Hang Seng and Shanghai) return less than 6% per year! 

Note that if we managed to buy at the exact low and sell at the exact high (our holy grail!) would have return at least 30% per year for most of the markets.

Someone (I forgot who) recommended selling stocks (distribute) when the 30w SMA is below the 50w SMA while buying stocks (accumulate) when the opposite occurs. Based on the results above, I think using the faster moving 50d and 200d SMA would perform slightly better.

However I would also think that selling and buying gradually in such a manner would risk being equivalent to selling and then buying back at the same levels (e.g. sell at 1000, 800, 600 then buy at 600, 800 and 1000.) especially if the index moved sideways in the longer term.

Better of course would be sell mostly in the beginning of the bear and buy mostly at the start of the bull (based on the SMA). The risk to this would be too short bull and bear duration or sideways market in which case the commission will be costly.