Technical Analysis: The Golden Cross

July 1, 2009 at 1:00 pm  ·  Category: Market Commentary, Technical Analysis

Technician Michael Kahn has a piece up on Barron’s Online today on the Golden Cross (“Will Stocks Turn To Gold?” (subscription online), Michael Kahn, Barron’s Online, July 1).  The Golden Cross is when the 50-day moving average moves above the 200 day moving average and is supposed to be a reliable buy signal.  John Mauldin was ranting about some technician going on about the importance of the Golden Cross the other day.

In today’s piece, Kahn says the Golden Cross was triggered on the Nasdaq yesterday, suggesting the turn from bear to bull market.  But a chart I made myself on BigCharts suggest the cross happened a few weeks ago in early June.

nasdaq-ytd-golden-cross

The Golden Cross buy signal was triggered last Wednesday (6/24) on the S&P 500.

sp-golden-cross-3-month

Anyways, the Golden Cross and it’s cousin The Black Cross have not always been reliable indicators.  In fact, the Black Cross gave a false sell signal on the Nasdaq back in the summer of 2006.

nasdaq-golden-cross-false-2006

 However, the Black Cross was correct in signalling the shift to a bear market on both indexes at the end of 2007.  For example, here’s the chart for the S&P 500.

sp-black-cross-2-year-chart1

Anyways, this is something technicians are keying in on right now.  In the end, John Mauldin said it best on whether this indicator turns out to be correct this time around: “It means nothing until it means something, and we won’t know what that something is for some time.”

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 
No Responses to “Technical Analysis: The Golden Cross”
  • Read Kahn’s article a bit more closely. He said that the buy signal was triggered “last month” which I took as deeper in the month than merely yesterday. He then made a specific point that the exponentially smoothed averages crossed yesterday. Your chart shows the simple averages crossing, which Kahn pooh-poohed in the piece.

    Barrons Reader  ·  Jul 1, 2009 at 1:53 pm  ·  Permalink
  • Read Kahn’s article more closely. He said that the Nasdaq crossed last month which I took as being deeper into the month than merely yesterday. You show simple averages in your chart which Kahn said did not work. However, the exponential version crossed on the Nasdaq yesterday but they did not cross on the S&P. Basically, Kahn said there has been no signal of any value at this time.

    barrons reader  ·  Jul 1, 2009 at 2:25 pm  ·  Permalink
  • Yes Kahn does use the exponential moving averages as well. But why? We had a Golden Cross on the S&P last week. Not the exponential moving averages. My overall point here is just that there are no surefire technical indicators. They are just a part of the overall picture you need to piece together. I’m a big Michael Kahn fan and read all his Barron’s articles.

    Greg Feirman  ·  Jul 2, 2009 at 10:25 am  ·  Permalink

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