Golden cross suggests return of the bull

Written on the 13 July 2009

IS now the time to get back into the stockmarket?

The famous ‘golden cross’, when a 50-day moving average of prices moves above a 200-day moving average, has long been one of the most closely watched technical signals by sharemarket analysts.

The signal occurred recently on the benchmark S&P/ASX 200, after end-of-financial-year buying caused the Australian market to push higher.

The last time the signal appeared was in July 2003 and local shares gained more than 120 per cent in the four years after the signal was generated.

“While there is every reason to still be cautious, this is one of the first technical signals that suggest a longer-term bull market might be returning,” says Steven Dooley from the Australian Stock Report.

But like all share market strategies, the ‘buy’ signal from this technical analysis technique needs to be monitored. For example, most technical analysts would watch carefully to ensure the moving averages do not cross back the other way – the so-called ‘dead cross’.

Dooley says an occurrence such as this would cause technical analysts to reconsider holding on to Australian shares.

“With many investors feeling wary about the sharemarket after the last two years, it might be a good idea to scale into the sharemarket, placing a certain proportion of investment capital into the market every couple of months,” says Dooley.

According to the Australian Stock Report, the golden cross can produce timely signals when the overall sharemarket trend changes from a downtrend to an uptrend, but it also can give false signals when markets are trading in a sideways manner.

There is no strict definition of a ‘golden cross’, with different analysts using various moving averages to help identify when financial instruments shift their overall general direction of markets or securities.

For example, a technical analyst might use such a technique to help determine when prices move from ‘bear markets’, when prices mostly drift lower, to ‘bull markets’, during which prices tend to move higher.

The 50-day and 200-day moving averages are long-term indicators, used to reduce the likelihood of obtaining false signals, and to lessen the frequency of transactions in and out of the market.


Latest News

THE COMPANY THAT DECIDED IT WAS GOING TO GIVE A CRAP THANKS TO CROWD FUNDING

SIMON Griffiths is using toilet paper to save the world.

In 2012, on the back of an IndieGoGo crowdfunding campaig...

TECHNOLOGYONE OUTSTRIPS PROFIT EXPECTATIONS AS R&D SKYROCKETS

TECHNOLOGYONE (ASX: TNE) has surpassed market expectations to achieve a half-year profit after tax of $8.1 million, u...

CLASS ACTION FILED AGAINST SURFSTITCH AFTER ANOTHER EARNINGS WIPEOUT

AS ONLINE retailer SurfStitch (ASX: SRF) battles for survival following another negative earnings forecast, a $100 mi...

SURFSTITCH DOWNGRADES EARNINGS AS SHARES PLUNGE 25 PER CENT IN A DAY

TROUBLED online sports clothing retailer SurfStitch is considering selling off more of its assets and will close i...

Related News

THE COMPANY THAT DECIDED IT WAS GOING TO GIVE A CRAP THANKS TO CROWD FUNDING

SIMON Griffiths is using toilet paper to save the world.

In 2012, on the back of an IndieGoGo crowdfunding campaig...

SURFSTITCH DOWNGRADES EARNINGS AS SHARES PLUNGE 25 PER CENT IN A DAY

TROUBLED online sports clothing retailer SurfStitch is considering selling off more of its assets and will close i...

AUSCANN RESUMES TRADE AFTER $12 MILLION CAPITAL RAISING

IT'S BEEN a big few days for medical cannabis manufacturer AusCann (ASX: AC8), as the company emerged from a trad...

APN AND oOh!media MERGER CALLED OFF, CEO 'AMAZED' AT ACCC'S DECISION

THE PROPOSED $1.6 billion merger between Australia's two largest advertising groups, APN (ASX: APO) and oOh!me...

BOOK YOUR FUNCTION SPACE HERE

 

 

 

Contact us

Email News Update Sign Up Contact Details
Subscriptions

PO Box 2087
Brisbane QLD 4001

LoginTell a FriendSign Up to Newsletter