Technically Speaking: “Golden Cross” Arrives, Are The Bulls Safe?
In this week’s “Technically Speaking,” the “Golden Cross” arrives, but are the bulls safe? As noted two weeks ago, is the 50/200 dma crossover is historically bullish for equities. However, with markets facing one of the worst earnings declines on record, could overly exuberant investors be walking into a trap?
Let’s start with what we wrote previously:
“As shown below, the market broke out of that consolidation and triggered “buy signals” across multiple measures. This breakout will give the “bulls” an advantage in the short-term with a retest of the June highs becoming highly probable.”
“The bulls will also gain some additional support from the “Golden Cross” (when the 50-dma crosses above the 200-dma). That “bullish signal” will likely occur over the next week or two depending on market action.”
As noted then, the “bullish supports” for the market kept our portfolio allocations weighted towards equity risk.
The “Golden Cross” Arrives
This week, the “Golden Cross” occurred as the 50-dma crossed back above the 200-dma. As suspected, the media was quick to take note. As noted by this headline from CNBC:
Bloomberg, via Yahoo Finance, was also quick on the trigger:
“The S&P 500 is sending a technical signal that has marked the end of every bear market in modern history.”
As Jeffrey Marcus noted at RIAPRO.NET the “Golden Cross” is indeed bullish for stocks.
“On Thursday, the S&P 500’s 50-DMA crossed above the 200-DMA. Such is known as a “Golden Cross” and has now happened 25-times over the past 50-years. The long term performance of the S&P 500 following such an occurrence is unabashedly positive.
TPA calculated the performance of the S&P 500 10, 20, 40, 80, 160, and 320 days following each of the 25 Golden Crosses since 1970. The average performance is 0.88%, 0.98%, 3.25%, 6.73%, 9.57%, and 15.70%, respectively.
The positive cross has happened 6-times in the past 10-years. The averages for 10, 20, 40, 80, 160, and 320 days following each was 0.53%, 0.89%, 2.64%, 8.17%, 10.45%, and 20.95%, respectively. “