Why the Golden Cross May Not Be Golden

Smita Sadana  Jun 29, 2009 11:05 am

Why the Golden Cross May Not Be Golden
 
Celebrations of the bear market's end may be premature.
 

So, while the media is celebrating, we have to worry about the possibility that this Golden Cross signal will reverse -- especially since all indicators (as tracked by the Bull Market Timer) haven’t lined up yet.

One solution would be to rely on the Golden Cross which occurs on exponential averages, thereby giving more weight to recent data, as opposed to equal-weighting all 200 datapoints.

Let’s examine 1932 again, this time with exponential MAs. As we can see below, there was only one Golden Cross triggered, as opposed to an initial trigger followed by oscillations, a Death Cross, and one final Golden Cross with the simple moving averages, as discussed above.



Looking at that metric, as the following chart shows, we're still waiting for the market to witness a Golden Cross in exponential MA terms.



The Golden Cross (even with simple MAs) is an important indicator, with a good track record of predicting future gains. It shouldn’t be dismissed out of hand. Nevertheless, every bear market has its own idiosyncrasies. While there are no certainties in the stock market, it’s useful to try to determine which way the probabilities are leaning -- and that doesn't mean leaning on any one indicator.
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Comments (2) See All Comments »
06-29-2009, 8:26 am
i just follow the 200 day simple moving average. if it is uptrending then be bullish. downtrending be bearish. when will it uptrend is the question. i am thing august if market doesnt fall apart again.
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07-29-2009, 9:30 am
Smita,

Excellent article.

I've been watching this trend since the initial October collapse.

I've been comparing the 200 day Simple Moving Average (SMA) with the 50 day Exponetial Moving Average (EMA)
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