Index traders should explore using linearly weighted moving averages. This type gives greater weight to the latest data. For example, to compute the 10-day linearly weighted moving average you would take the closing price of the 10th day, multiply by 10, the 9th day by 9, etc. Then the prices should be divided by the total number of multipliers (using a 10-day example there are 55 multipliers. Similar to the exponential moving average, we see this type of study as best for studying new rather than old data Using interest rates in conjunction with earnings is another effective way to study movement. There is a formula used to measure the impact of rising rates on valuations of the stock market as a whole. It’s the reciprocal of the US 10-Year Treasury ($TNX) multiplied by the expected earnings of the S and P 500 companies. www.sp-global.com leads to the Standard and Poor website. Find the expected projected earnings of the S and P 500 and multiply by the reciprocal of the yield on the 10- year note. Ex: The TNX yield is 4.1% Earnings for the whole S and P 500 is projected at 67.40 divide by .041 x 67.40= (24.40 x 67.40) = 1645 In this example if the SPX is trading near 1220 it is 36.50 undervalued by this formula. If the SPX were near 2000 it would be 21.5% overvalued. TNX is a valuable tool for review.
