Golden cross suggests return of the bull

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.

Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support

Business success comes from thinking inside the box for TAXIBOX founder
Partner Content
On a first glance, the world of storage solutions might not seem particularly exciting ...
TAXIBOX
Advertisement

Related Stories

Will philosophy and ‘counterfactuals’ help us unlock the mysteries of AI?

Will philosophy and ‘counterfactuals’ help us unlock the mysteries of AI?

Artificial intelligence is increasingly being rolled out all around...

ACCC launches probe into misleading social media influencer posts

ACCC launches probe into misleading social media influencer posts

Australia's consumer watchdog is cracking down on social media ...

Takeover talks reignited between Tyro and Potentia Capital

Takeover talks reignited between Tyro and Potentia Capital

Talks of a potential takeover are back on between Sydney-based Tyro...

Go1 acquires AI-powered ed-tech Anders Pink

Go1 acquires AI-powered ed-tech Anders Pink

Queensland-based Go1 has this week acquired a UK ed-tech partner fo...