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How Bullish is the Golden Cross ? (UPDATED)

Posted By Barry Ritholtz On January 30, 2012 @ 12:00 pm In Markets,Technical Analysis | Comments Disabled

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 [1].

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 [2]) 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

[3]

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Based on 50 day crossing a rising 200 day Moving Average

[4]

All tables courtesy of The Chart Store [2]

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Chart examples of nearly all of these are after the jump

Previously:
Worry About Important Things — Not The Death Cross [5] (August 16th, 2011)

See also:
All Star Charts: Pay No Attention To This Golden Cross [6] (January 30, 2012)

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A few interesting charts showing Golden Cross

All Charts courtesy of The Chart Store [2]


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2012/01/how-bullish-is-the-golden-cross/

URLs in this post:

[1] The Chart Store: http://www.thechartstore.com

[2] The Chart Store: http://www.thechartstore.com/

[3] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/01/1-27-12-Golden-Cross-Up-Down-Table.gif

[4] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/01/1-27-12-Golden-Cross-Up-Up-Table.gif

[5] Worry About Important Things — Not The Death Cross: http://www.ritholtz.com/blog/2011/08/worry-about-important-things-not-the-death-cross/

[6] Pay No Attention To This Golden Cross: http://allstarcharts.com/pay-no-attention-to-this-golden-cross/

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