Golden Crosses and Death Crosses As Technical Indicators

The golden and death crosses are often seen as signs of bullish and bearish price action, respectively, for a stock or index

Jan 6, 2017 at 9:57 AM
facebook twitter linkedin


Investors are constantly hunting trends, signs, and signals that could help predict a stock or index's future movement. "Golden crosses" and "death crosses" are just two of the technical indicators utilized by traders seeking an edge.

A golden cross occurs when a short-term moving average crosses above a longer-term moving average. Most commonly, an equity or index's 50-day moving average and 200-day moving averages are used to determine when such a cross occurs. A golden cross is considered to be a bullish sign, signaling an oncoming upswing for an equity or index. Besides just signaling a potential upswing, the longer-term average often becomes a support level for that particular stock or index.

170105SPX golden cross

Alternatively, a death cross occurs when a short-term moving average crosses below a longer-term moving average. This is thought to be a bearish sign, signaling an oncoming decline for an equity or index. In the same way the long-term moving average becomes a level of support during a golden cross, with a death cross, the long-term moving average usually becomes a level of resistance. In addition, with both death crosses and golden crosses, the higher the trading volume that accompanies the signal, the more relevant the signal is considered to be.

170105CERN death cross

While the accuracy and usefulness of such indicators are frequently debated, there seems to be evidence that golden and death crosses can indicate both short- and long-term trends to some degree. For example, AAPL's 2012 death cross led to nearly 30% losses over about four months, while the subsequent golden cross upon the stock's recovery also preceded notable gains.

170105AAPL

Below are some examples of stocks that have experienced either a golden cross or death cross between Dec. 29 and Jan. 4, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. The first two tables are specific to S&P 500 Index (SPX) stocks, while the next two tables look at all optionable stocks with a trade volume of more than one million shares per day, and that last closed above $7, as of Wednesday, Jan. 4.

170105SPX chart
170105 death cross chart

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!


A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners