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S&P 500 Near A Golden Cross

06/22/09 08:58:54 AM
by Mike Carr, CMT

Long-term moving averages are setting up a reliable buy signal on the S&P 500.

Security:   SPY
Position:   N/A

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 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; the last losing trade occurred 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.

Mike Carr, CMT

Mike Carr, CMT, is a member of the Market Technicians Association, and editor of the MTA's newsletter, Technically Speaking. He is also the author of "Smarter Investing in Any Economy: The Definitive Guide to Relative Strength Investing," and "Conquering the Divide: How to Use Economic Indicators to Catch Stock Market Trends."

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