There is a new so-called golden cross in the stock market. Consider paying attention to it, but not for reasons others have cited.
Let us explore the issue with the help of a chart.
Chart
Please click here for an annotated chart of S&P 500 ETF SPY. Investors may also want to observe similar behavior on the charts of Dow Jones Industrial Average DJIA, Nasdaq 100 ETF QQQ, and small-cap ETF IWM. Those don’t produce a golden cross or a death cross at the same time. Please note the following:
• The chart shows the new golden cross.
• A golden cross occurs when the 50-day moving average breaks above the 200-day moving average. This is a bullish pattern.
• A death cross occurs when the 50-day moving average breaks below the 200-day moving average. This is a bearish pattern.
• Historical data show that golden crosses have a great track record, but the sample size is not large enough.
• A golden cross tends to be better than a death cross at future predictions.
• The traditional definition is to buy on a golden cross and sell on a death cross.
• Here is an intelligent question investors should ask: “What is so special about a 200-day moving average and a 50-day moving average?” Why not a 220-day moving average and a 40-day moving average?
• Here is another intelligent question: “What do moving averages on a chart have to do with earnings and the macro picture such as interest rates?” After all, earnings and interest rates are the two best determinants of the stock market.
• The chart shows the last Arora buy signal that was given on Christmas Eve, which turned out to be the low of this cycle in the stock market….Read more at MarketWatch.
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