The S&P 500 Just Got Its First Golden Cross In 30 Months: What Does it Mean for Investors?
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Summary:
The S&P 500 recently achieved its first “golden cross” in 2½ years, but what does that mean for investors? The golden cross is a sign used by technical analysts that an upward trend in the market is gaining momentum. However, while the golden cross can precede gains in stocks over the next 6-12 months, it’s not a guarantee. Despite some positive signs in the market, like the advance-decline line reaching a new cycle high, and the strong performance of cyclical sectors, there is still uncertainty about monetary policy and the macroeconomic outlook. Technical analysts consider the golden cross as just one piece of the puzzle and use other indicators for confirmation.
The S&P 500 recently achieved its first “golden cross” in 2 and a half years, which is a term used by technical analysts to indicate that an upward trend in the market is gaining momentum.
This golden cross is formed when the 50-day moving average of the S&P 500 crosses above the 200-day moving average.
Historically, the golden cross has often preceded gains in the stock market over the following 6-12 months, but not always. In fact, there have been instances where the stock market declined following a golden cross, such as in 2019 and during the dot-com bubble in 1999.
“The way we think about it is all big rallies start with a golden cross, but not all golden crosses lead to a big rally. It’s just one piece of the puzzle,” Ari Wald, head of technical analysis at Oppenheimer.
Technical analysts use the golden cross as just one piece of the puzzle and look to other indicators for confirmation. For example, Ari Wald, head of technical analysis at Oppenheimer, pointed to the recent cycle high of the advance-decline line, which shows whether the gains in the major equity index are being powered by a broad range of stocks or just a few. Additionally, the strong performance of cyclical sectors like technology and consumer discretionary is another positive sign for the stock market.
However, there is still much uncertainty about monetary policy and the macroeconomic outlook, with some analysts doubting that the stock market will simply return to normal so quickly. Traders should approach indicators like the golden cross with caution, especially in such a choppy market environment.
Frequently Asked Questions
What is the golden cross indicator?
The golden cross is a term used by technical analysts to indicate that an upward trend in the market is gaining momentum. It’s formed when the 50-day moving average of an index crosses above its 200-day moving average.
What does it mean for investors?
Historically, the golden cross has often preceded gains in the stock market over the next 6-12 months. However, it’s not a guarantee, and there have been instances where the stock market declined following a golden cross. Technical analysts consider the golden cross as just one piece of the puzzle and use other indicators for confirmation.
Is the current golden cross a good sign for the stock market?
There are some positive signs in the market, like the advance-decline line reaching a new cycle high and the strong performance of cyclical sectors. However, there is still uncertainty about monetary policy and the macroeconomic outlook, so traders should approach the golden cross with caution in a choppy market environment.
Key takeaways
- The golden cross is a sign used by technical analysts that an upward trend in the market is gaining momentum.
- Historically, the golden cross has often preceded gains in the stock market over the following 6-12 months, but not always.
- Technical analysts consider the golden cross as just one piece of the puzzle and use other indicators for confirmation.
- There is still much uncertainty about monetary policy and the macroeconomic outlook and traders should approach indicators like the golden cross with caution in a choppy market environment.
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