Why a price below its 10-month moving average is treated as a warning, what the research says, and how often the signal changes.
The trend thermometer compares the S&P 500 with the average of its last ten months of prices (price / average − 1). Above the average the trend is up; below it, prices have fallen enough to break the trend.
Valuation thermometers (CAPE, risk premium) can stay red for years while markets keep rising. Trend-following rules of this kind, studied among others by Faber (2007) and by Neely, Rapach, Tu and Zhou (2014), react instead to what prices are doing now, and historically have cut part of the deepest falls.
In sideways markets the index crosses its average back and forth, and each crossing changes the signal: a rule that followed it mechanically would trade often and sometimes at the wrong moment. Anacleto only shows the signal; what to do with it is up to your rules.