The biggest question in the charting world right now is whether the S&P 500 will complete a Golden Cross — where the 50-DMA crosses above the 200-DMA. Unless SPX falls to around 2600 by next week, it is inevitable. But, what happens after that isn’t exactly written in stone.
SPX experienced its evil twin, the Death Cross, back on Dec 7 and plunged 350 points over the next few weeks.
As positive as Golden Crosses are supposed to be, sometimes they fizzle out. The most notorious example was in 2015. After the Golden Cross occurred on Dec 24, SPX rose all of 21 points before plunging 269 points over the following three weeks.
There were a number of hints that it might have been a head fake. For one, SPX actually fell below both moving averages the day after the Golden Cross occurred — not a bullish move. In addition, the 10-DMA (thin red line) hadn’t crossed above the 20-DMA (white line.)
As we can see from the chart up top, these 10/20 crosses are pretty good — but, not perfect — indicators. The red arrows mark sell signals and the green arrows mark buy signals.
If, beginning Oct 9, someone had sold at the close on each day the 10-DMA crossed below the 20-DMA and bought on the days it crossed above, they would have earned 9.2% versus the buy-and-hold return of -2.3%.
Had someone sold at 2880 on Oct 9 and bought at 2346 on Dec 26, they’d be sitting on a 34% gain. In other words, there are compelling reasons to try and time the market — whether to maximize one’s return or simply to protect capital.
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