o MACD Indicator and the Best 6 Months timing

Best 6 Months with MACD Indicator

The Best 6 Months market timing strategy (Buy on 1st trading day of November and Sell on 1st trading day of May of following year) allows to capture 85%-90% of the stock market returns but with much lower risk.

Sy Harding, in his book "Riding the Bear: how to prosper in the coming Bear market" (published in 1999) enhanced the strategy with the MACD Indicator.

The improved strategy adjusts the entry and exit dates with to the MACD Indicator.
  • From 16 October, Buy when both the MACDs of the S&500 and the Dow to turn positive.


  • From 20 April, Sell when the MACDs of the Market to turn negative.

MACD Indicator

The Moving Average Convergence Divergence MACD is a technical analysis indicator developed by Gerald Appel.

As its name suggests, MACD uses moving averages. Exponential Moving Averages EMA (more weigths to recent prices) are used to get faster signals.


The MACD indicator formula:
  1. substract a short EMA to a long EMA:
    EMA(short)-EMA(long)


  2. compute a subsequent EMA of the indicator obtained in 1:
    EMA[EMA(short)-EMA(long)]


  3. together, both indicators constitute the MACD and are usually plotted in a chart below the stock price.

  4. The MACD histogram is the subtraction between the 2 indicators. It is called this way because it is represented with histograms.
    MACD histogram=[EMA(short)-EMA(long)]-EMA[EMA(short)-EMA(long)]


In Technical Analysis program, you will see 3 parameters in brackets to compute the MACD: e.g MACD(12, 26, 9).
  • The 1st parameter is the length (*) of the short moving average.

  • The 2nd parameetr is the length (*) of the long moving average.

  • The 3rd parameter is the length (*) of the subsequent moving average.

(*) The length could be in days, weeks, months depending on your investment timeframe. (12, 26, 9) is quite standard and is the set of parameters (with daily datas) used in the Best 6 Months timing strategy.


The graph below shows a stock chart with its MACD(12, 26, 9) plotted below.

MACD charts with Buy Sell Signals

  • EMA(short)-EMA(long) is shown in black.

  • EMA[EMA(short)-EMA(long)] is shown in red.

  • The MACD Histogram is shown in blue.


    • The green and red arrows on the stock price show Buy and Sell signals based on MACD turning positive (black curve rising above red curve) or negative (black curve dropping below the red curve).

    These are the type of MACD signals used by Sy Harding in the Best 6 Months market timing strategy (*). Many other trading strategies exist with the MACD.

    (*) MACD can give many Buy and Sell signals. The beauty of combining it with the Best 6 Months timing strategy is that you only use the 1st signal (after 20th April or after 16th October) and then wait for about 6 months whatever the MACD indicator's behavior. This way, you're not constantly jumping in and out of the market.


    The graph below shows one specificity of the MACD that makes it popular amongst investors using technical analysis.

    MACD Indicator is better than moving average crossovers




    As you can see, MACD gives Buy and Sell signals (filled arrows) earlier than standard moving average crossovers (empty arrows).

    This is important because moving averages are trend following indicators. MACD compensates a bit the delay introduced by moving averages.

    Basically, MACD looks at the direction of moving averages:

  • In continuing trend, the short moving average will rise or fall faster than the long one, it will diverge from the long average.


  • In reversing trend, the short average will reverse earlier and will converge toward the long one (and possibly cross it), hence the name Moving Average Convergence Divergence.


    • See how the black and red curves subsequently diverge and converge until they crossed each others ?

    You can check the MACD of the S&P500 with Stock Charts and the MACD of the Dow with Stock Charts.

    Combining the Best 6 months and the MACD Indicator

    The idea of combining the MACD to the best 6 motnhs timing is:

  • if the Market is in a powerfull downtrend comes October-November time-frame, it is best to wait for an upturn before buying. If the market is in an uptrend, then better buy before 1st trading day of November.


  • if the Market is in a powerfull utrend comes April-May time-frame, it is best to wait for an upturn before selling. If the market is in an downtrend, then better buy before 1st trading day of May.



    • The following table shows the performances of the original Best 6 Months timing strategy and the improved version with the MACD Indicator.

    Strategy Average Return Annualized Return Standard Deviation   %Positive Years Min Return Max Return %time invested
    Buy And Hold 8.4% 7.0% 17.1% 73% -38.5% 44.2% 100%
    Best 6 Months 6.7% 6.1% 10.7% 70% -18.4% 28.5% 50%
    Best 6 Months + MACD 8.7% 8.2% 10.4% 78% -9.1% 41.0% 52%
    S&P500 (Dividends excluded) from 1950 to 2008




    The MACD indicator really provides an outstanding improvement of 2% returns above the original strategy without sacrificing volatility. Better, the minimum annual return is improved.

    The strategy with the MACD handsomely beats Buy and Hold with more tha 1% better annualized returns and much lower volatility.

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