S&P 500 Near a Golden Cross

06/24/2009 12:01 am EST

Focus: STRATEGIES

Michael Carr

Chief Market Technician, Market Technicians Association

The golden cross is a bullish moving average crossover generally using the 50-day and 200-day moving averages. A buy signal is given when the 50-day crosses above the 200-day. In Figure 1, we see that the Standard & Poor's 500 (tradable via the SPY ETF) is very close to that point.


FIGURE 1: $SPX, DAILY. The 50-day moving average is less than 1% below the 200-day moving average for the S&P 500. Graphic provided by: Trade Navigator.

If this crossover occurs, it will be another long-term bullish signal for the market. Testing results show it has been very reliable since 1950. This pattern has occurred 30 times in more than 58 years. Over that time, 80% of the trades have been winners, with the average winner lasting about two years. Losing trades tended to last less than three months, on average.

The last seven trades have been winners, with the last losing trade occurring in 1990. If the cross occurs, it is certain to garner media attention. Active traders may want to consider being ready to take a long position at the close when the moving averages are set to cross.

By Mike Carr, CMT

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