Dow nears a 'golden cross'

The index is close to seeing its 50-day average surpass its 200-day average. What does the phenomenon mean?

By Kim Peterson Oct 1, 2010 2:47PM
The death cross came and went this summer, and no one batted an eye. Will the upcoming golden cross be just as meaningless?

A golden cross is generally considered good news for stocks, and one hasn't been seen in the Dow Jones Industrial Average since 2005. A golden cross occurs when the 50-day average moves higher than the 200-day average (when both are rising).

The 50-day average for the Dow is 0.1% away from the golden cross, Bloomberg reports. It would take a significant sell-off to avoid a golden cross, writes one Seeking Alpha contributor.

As it turns out, a golden cross doesn't mean much. Bespoke Investment Group researched the 36 occasions when a golden cross has appeared in the Dow since 1900 and found mixed results.

In the three months after the cross, the Dow increased only 0.3% on average, Bespoke found. That's hardly impressive, considering the benchmark gains 1.6% in an average three-month period.

"While you may hear people cite the upcoming 'golden cross' as a positive indicator for the market, the historical numbers tell a different story," a Bespoke executive said, according to Bloomberg. "Golden crosses may work for some securities, but they haven't for the Dow."

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