Pinging around trading desks last week was a report from Birinyi Research on the Golden Cross. Given where prices are (and the days dropping off the MA from 200 days ago) the S&P Composite is likely to see the Golden Cross soon

Here’s the excerpt:

“There were 26 instances in the past 50 years when the S&P 500’s short-term average crossed above the long-term gauge, according to Birinyi. The index rose 81 percent of the time with an average increase of 6.6 percent in the next six months, the data show.

Stocks posted bigger returns when the S&P 500’s 50-day rose above a falling 200-day, Birinyi data show. The index jumped an average 10 percent over the next six months, according to the study.”

There were two unfortunate problems errors in that piece: First, there were two mistakes for two specific years (1/26/72 and 9/15/94). That is based on Ron Griess’ work, using data from The Chart Store.

Second, they used an odd time period — 1960 to present. Data exists back to 1930s, so why not use it? The usual answer is data mining, and as we see below, that very much applies here. The post 1960 data is far more bullish than the earlier data — so why use it?

Overall, the Golden Cross does have a positive bias — its just not nearly as Bullish as that Birinyi report suggests. (File that in the blue recycle bin)

The following two tables and 17 charts (from The Chart Store) show the history of such events for the S&P Composite from 1930 to the present, including ALL 47 crosses where the 50 day moving average is rising and moves above the 200 day moving average. Not how the data after 1960 is much more bullish.

(I am surprised this came from Birinyi Research — I have never known them to data mine previously)

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Click to enlarge:
Based on 50 day crossing a falling 200 day Moving Average


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Based on 50 day crossing a rising 200 day Moving Average


All tables courtesy of The Chart Store

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Chart examples of nearly all of these are after the jump

Previously:
Worry About Important Things — Not The Death Cross (August 16th, 2011)

See also:
All Star Charts: Pay No Attention To This Golden Cross (January 30, 2012)

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A few interesting charts showing Golden Cross

All Charts courtesy of The Chart Store

Category: Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “How Bullish is the Golden Cross ? (UPDATED)”

  1. Bill Wilson says:

    I wonder if this could be a better predictor if we looked at the performance of the S&P over the previous year, and the amount of time that the 50 day moving average spent below the 200 day moving average in the previous year.

    In other words, the market is up over the last year, and the 50 day moving average was above the 200 day moving average for a little more than half of the last year, so it’s not like we are snapping back from a deep, prolonged selloff.

    I’m not trying to assign homework, just thinking out loud.

  2. Juke Jones says:

    I think you need to replace the words “data mining” with the seeming negative inference with “data dredging” or “data snooping”

  3. constantnormal says:

    Data mining is the phrenology of the 21st century.

  4. OilfieldHippie says:

    I believe that you mean “data masking” or “data selection.” Data mining, at least in engineering, is analysis of (sometimes not-readily-apparent) relationships between data in a data-set. Just about everything discussed on this blog is about data mining to some extent, and removing data masks is certainly beneficial.

  5. Through the Looking Glass says:

    “How Bullish is the Golden Cross ?”
    about as Bearish as the “Death Cross” was last summer when the market went up

    Or as shown in clinical studies:

    ” about as much wood as a woodchuck could chuck if a woodchuck could chuck wood”

  6. RW says:

    I suppose it is mining of a sort: The sell-side looking for more nuggets to convince investors it’s time to buy.

  7. Petey Wheatstraw says:

    Through the Looking Glass:

    Strange you should bring that up.

    In college, for extra credit, I was involved in a study to answer the woodchuck question. After observing both wild and captive woodchucks for more than 5 years, the study concluded that the average woodchuck could chuck 3.2 buttloads of wood in its lifetime.

  8. RW says:

    I thought the classic golden cross was when both the short and long trends were rising? Right now the S&P’s 200 DMA looks flat to slightly down-trending and its RSI is falling.

    Is it just the cross-over event itself that is “golden?”

  9. CANDollar says:

    Standard and Poors studied this as well recently:

    The 50x200SMA cross returned 7.4% from Dec 31 1969 to July 8 2011 and beat the SP500 40% of the time on an annual basis.

    The Best year was 34.1%.
    The worst -15.2%.
    There was an average of 1.0 signal changes per year.

    During the 2000s the 50x200SMA beat the SP500 70% of the time with an annual average change of 5.7%.

    The rule was:
    Buy when 50 crosses the 200 up.
    Sell when 50 crosses 200 down.

    What is the trouble with using such statistics to inform tactics in asset allocation?

  10. Through the Looking Glass says:

    Petey Wheatstraw

    I knew something was up with that Woodchuck formula and Im glad you whittled it down to size. Ill be hiding the barca lounger then from those varmits.

    I have have a similar thesis I’m working on ” what do mosquitos bite on in the woods when Im not around?”

    Hey Wheaty ,are they hiring where you work?

  11. Drizzt says:

    there are a few golden and death cross combinations. Decision Point users the 17×43 week EMA cross over while i heard the 13×39 week EMA cross over. There is the 400 day cross over and 10 month cross over.

    i wonder if anyone can point to resources that shows the success rate of those over a period of time.

  12. Rightline says:

    Something I wonder about is when was a particular tecnical indicator recognized as such? I mean the fact that we see a 50/200 cross, cup and handle, reverse head and sholders brings money in. It nudges the indicator toward a self fulfilling prophecy. So I wonder how a particlar technical performance compares before and after it was reconized as a positive indicator….

  13. RealReturn says:

    This link has the results of the Golden Cross going back to the 1950s. Every trade with a chart.

    http://www.indexresult.com/MovingAverage/Simple/50/200/SP500

    This link has results of various moving average based simulations.

    http://www.indexresult.com/Links/SP500

  14. [...] really care if the cross is golden or fuchsia (see my Pay No Attention to Golden Cross and How Bullish is the Golden Cross? via Barry Ritholtz). What I do care about is the security’s potential to trade higher above [...]