Golden Cross vs Dead Cross. From a technical point of view, it doesn’t look promising. Take a look at the chart below of the S&P 500 representing the market over the last 3 years. The yellow shaded boxes show where the 50 day moving average crosses the 200 day moving average (or is about to cross in the near future.) These crossovers have a name associated with them. When a shorter moving average crosses up above a longer moving average (50 day MA crosses up above the 200 day MA), it is referred to as a “golden cross.” You will see such an occurrence in the summer of 2009. When a shorter moving average crosses below a longer moving average (50 day MA crosses below the 200 day MA), it is referred to as a “dead cross.” The last occurrence for this was back at the end of 2007.
Depending on the moving average time frame, we can look at these crosses as shorter or longer term outlooks. Using the 50 day and 200 day averages would typically be considered a longer term outlook by most people. What does it look like is about to happen in the market now? I think you can see from the chart, that it is pretty self-explanatory to know what might happen if we get another dead cross. These crosses don’t happen very often when using the 50 day and 200 day averages with the overall stock market. Since these occurrences are infrequent, we would be wise to take caution if a dead cross were to appear.
By Scott Chandler
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