Golden Cross April 2016 (Dow Jones IA)
Bullish Crossover Moving Average 50days/200 days
A bullish ‘golden cross’ chart pattern has appeared in the Dow Jones Industrial Average, and this one may have a better shot of working out for investors than the one that failed just four months ago.
This might give some technical analysts more confidence that the Dow’s rally can continue at least until it breaks above the 19th May 2015 record close of 18,312.39, which is just 1.7% away from current levels, before it stops. The Dow’s 50-day moving average, which technicians use as a shorter-term trend tracker, moved up to 17,121 on Tuesday (19th April 2016), from 17,085.42. That crossed above the 200-day moving average, widely-viewed as a guide to the long-term trend, which rose to 17,116.47 from 17,115.
Many technicians believe this relatively-rare technical event marks the spot where a shorter-term rebound morphs into a longer-term uptrend. There are skeptics, however, given that many previous “golden cross” signals failed as market timing tools, as they appeared closer to market tops than a trigger for further gains. And it’s not as if the signals can creep up on bearish investors, as they can be seen coming weeks in advance.
The Dow’s last “golden cross” appeared on Dec. 17, 2015. The Dow was peaked seven sessions later, about 1.3% higher, before the bottom fell out. Less than two months later, the Dow was down more than 10%. But what might give investors more confidence in the current “golden cross” is that the 200-day moving average is rising, meaning the overriding trend has already turned bullish, while the 200-day moving average was still declining in December 2015.
Still, stay cautious, since: The last two “golden cross” signals that preceded significant gains - 3rd Jan. 2012 and 1st Oct. 2010 - occurred after the 200-day moving averages had turned higher.
In addition, the Dow closed Monday above its November peak to producer a higher high, breaking the pattern of lower highs and lower lows—a pattern that defines a downtrend—that had been in place for nearly a year. Despite the bullish signs, some technicians remain skeptical of the sustainability of the Dow’s rally, considering it has soared 15% in a little over nine weeks.
The Dow Jones Industrial Average’s 50-day moving average is set to cross above its 200-day midweek. Known as a “golden cross,” the chart pattern typically signals stock gains ahead. But that’s not what happened in December, when the last golden cross occurred. So is this current rally, which has stalled in recent weeks, doomed to the same fate as October’s (2015)?
Take the Dow Transports: Back in December, it was days from entering bear-market territory, But after bottoming in late January, it took just two months to notch a 20% advance, the technical definition for starting a new bull market.
The Russell 2000, meanwhile, is finally on the verge of closing above its 200-day moving average for the first time since days before late August’s slump. It’s the sole notable broad index which hasn’t done so during this rebound.
The lackluster performance of small stocks has concerned those seeking confirmation of the market’s ongoing bounce. The Russell breaking through its 200-day would be a positive first step on a technical basis. (It remained just below it on a closing basis the past three sessions, in a sign the index is hitting a potentially significant resistance level.)
Lastly, while the S&P 500 remains 50 points shy of last spring’s record-high close of 2,130.82 and is near key resistance in the 2,100 area, one measure of the index’s strength is at fresh bull-market highs.
strategy-paper/Backtest/.pdf (avoiding Big Losses): https://www.djindexes.com
stay cautios ("there is no free lunch"): https://lplresearch.com