In the middle of June, we had the Golden Cross formed, where the 50dayMA crosses above the 200dayMA on the daily. This is an important formation that historically tends to indicate potentially a multi-year trend change. We had a Death Cross (where the 50dayMA crosses below the 200dayMA) that started about 2 years ago, accompanying the severe recession. Now the Death Cross becomes the Golden Cross last month. Some chartists believe that it's not a valid Golden Cross because this present 200dayMA is sloping downwards. Others, and I'm in that camp, believe it is still a valid Golden Cross despite the negative slope.
Minyanville, in this article, believes that the Golden Cross may not be valid and they bring up the 1932-1933 chart to prove it:
Since everyone seems to like to compare what is happening today to what happened in the 1930's, then July 1932 (from the chart above) is equivalent to March 2009. In both instances, a Golden Cross was formed a few months later when the "low" was hit.
Here's the chart of the Dow Jones today:
The first chart (1929-1932) shows that the Golden Cross, due to the declining 200dayMA, actually reversed and became the Death Cross again as the 50dayMA crossed below the 200dayMA. However, a few months later another Golden Cross was formed and that particular one signaled the end of the bear market.
Similarly, I think the same will happen with the second chart (2009) - a Golden Cross reverses into a Death Cross and back to a Golden Cross, ultimately signaling the end of the bear market.
Note that in the first chart (1932-1933), even though the first Golden Cross may have been invalid, the important thing to note is that the July low of 1932 held. For a few months, the market occillated back and forth from Golden Cross to Death Cross and back to Golden Cross, the market ultimately gave back about 68% of the rally from the July 1932 low before beginning a real bull market with the second Golden Cross. So in the strictest sense, the Golden Cross with the negative sloping 200dayMA may not be valid if we use 1932-1933 as template; however, in 1932, it did signal a real bull market was not too far away.
Likewise, last month's Golden Cross may signal a real bull market is not too far away. If 2009 plays out just like 1932-1933, then within the next 3-4 months the Dow Jones will trade sideways until it eventually hits the 68% retracement at about 7400 before the real bull market begins. And on the SPY, it should hit a 68% retracement to around 77 in a few months before really taking off to the upside.
-Beanie
Minyanville, in this article, believes that the Golden Cross may not be valid and they bring up the 1932-1933 chart to prove it:
Since everyone seems to like to compare what is happening today to what happened in the 1930's, then July 1932 (from the chart above) is equivalent to March 2009. In both instances, a Golden Cross was formed a few months later when the "low" was hit.
Here's the chart of the Dow Jones today:
The first chart (1929-1932) shows that the Golden Cross, due to the declining 200dayMA, actually reversed and became the Death Cross again as the 50dayMA crossed below the 200dayMA. However, a few months later another Golden Cross was formed and that particular one signaled the end of the bear market.
Similarly, I think the same will happen with the second chart (2009) - a Golden Cross reverses into a Death Cross and back to a Golden Cross, ultimately signaling the end of the bear market.
Note that in the first chart (1932-1933), even though the first Golden Cross may have been invalid, the important thing to note is that the July low of 1932 held. For a few months, the market occillated back and forth from Golden Cross to Death Cross and back to Golden Cross, the market ultimately gave back about 68% of the rally from the July 1932 low before beginning a real bull market with the second Golden Cross. So in the strictest sense, the Golden Cross with the negative sloping 200dayMA may not be valid if we use 1932-1933 as template; however, in 1932, it did signal a real bull market was not too far away.
Likewise, last month's Golden Cross may signal a real bull market is not too far away. If 2009 plays out just like 1932-1933, then within the next 3-4 months the Dow Jones will trade sideways until it eventually hits the 68% retracement at about 7400 before the real bull market begins. And on the SPY, it should hit a 68% retracement to around 77 in a few months before really taking off to the upside.
-Beanie