A common method to time markets and stocks is to use a moving average of prices. A popular time range is a two- hundred day moving average (MA). When a securities price breaks above its 200 – day MA it’s a bullish signal, a move below the 200 – day MA is bearish.
A variation of the method is to use signals from two moving average lines. Combining the 200 – day MA with the 50 – day MA is widely used.
When the 50 day – MA crosses above the 200 – day MA it’s a bullish signal and referred to as a Golden Cross. The 50 – day MA crossing below the 200 – day MA is bearish and called a Death Cross. Because stocks and stock markets tend to rise slower than they fall, Golden cross signals are highly effective, Death Crosses are far less effective.
Please see the daily S&P 500 (SPX) chart.
Note that traders needed to be nimble if trading the late 2018 Death Cross signal as the SPX bottomed in about two weeks. The March 2020 Death Cross came after the SPX bottom was in place.
There have been six Golden Cross signals since the secular bull market began in March 2009.
The following are the results of those signals
- 06/23/09 to 04/27/10 – 35% gain in 10 months.
- 10/21/10 to 05/02/11 – 22% gain in 6 months.
- 01/30/12 to 05/21/15 – 69% gain in 40 months.
- 12/21/15 to 12/29/15 – no gain.
- 04/21/16 to 09/21/18 – 46% gain in 29 months.
- 04/01/19 to 02/19/20 18% gain in 10 months.
The most recent signal came on 07/09/20 with the SPX at 3152.
Adding a growth rate of the smallest effective signal – 18% to SPX 3152 targets 3719.
Adding the shortest time – 6 months to July 2020 targets January 2021.
My previous blog “S&P 500 – Price and Time Projections” noted the SPX could hit the range of 3780 to 4010 and could peak sometime from February to May 2021.
Calculations from the effective Golden Cross signals illustrate the SPX could reach the price and time zones illustrated in the “S&P 500 – Price and Time Projections” blog.
2 thoughts on “Golden and Death Crosses”
Thanks for another informative blog, Mark. You sure know the stock market’s fine details like no one else. Keep up the excellent work!