All hail the Golden Cross
Does its appearance in the charts say much about where the market is headed?
Some think so. In fact, the Golden Cross seems to be a better indicator about where the stock market is headed than the other side of the coin, which would be the "Death Cross." The S&P 500 usually gains about 10.2% in the 12 months following a Golden Cross, The Wall Street Journal reports.
The Death Cross? Despite its terrifying name, it leads to an average 3.5% gain for the S&P 500.
The Golden Cross occurs when the S&P 500's 50-day moving average crosses above the 200-day moving average. It could happen with any security, but when it happens with the S&P 500, people notice. This has happened 26 times since 1962.
The following video discusses whether the Golden Cross is a flashing "buy" sign.
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Investors seize upon the Golden Cross as reason to be bullish about the market. And we've seen some of that enthusiasm in the uptick this week in the SPDR S&P 500 Trust (SPY) exchange-traded fund, which briefly passed $133 Wednesday.
Birinyi Associates has studied the six-month period following a Golden Cross, and said stocks go higher 81% of the time for an average gain of 6.6%, the Journal reports.
So should we all rush out to buy? Blogger Eddy Elfenbein is skeptical of technical milestones. "After all, the S&P 500 has already soared a good deal off its October low," he writes. "It seems strange to say after a very solid rally that now is the time when things looks good."
He's right. We've seen a 20% jump in the index since October. If stocks follow history and go 6.6% higher in the next six months, well, that would just be the icing on top of an already delicious cake.
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