A Combined Signal Approach to Technical Analysis on the S&P 500

Abstract

This paper examines the effectiveness of nine technical trading rules on the S&P 500 from January 1950 to March 2008 (14,646 daily observations). The annualized returns from each trading rule are compared to a naïve buy-and-hold strategy to determine profitability. Over the 59 year period, only the moving-average cross-over (1,200) and (5,150) trading rules were able to outperform the buy-and-hold trading strategy after adjusting for transaction costs. However, excess returns were generated by employing a Combined Signal Approach (CSA) on the individual trading rules. Statistical significance was confirmed through bootstrap simulations and robustness through sub-period analysis.

Keywords: Technical Analysis, Market Efficiency, Combined Signal Approach, S&P 500

JEL Classification: C15, G11, G14