Dominic Picarda’s Technical Take
The Golden Cross When a market’s 50-day moving average crosses above its 200-day moving average, it is known as a “golden cross,” and is supposedly a buy-signal. This indicator has all but entered the investment mainstream – even the Financial Times mentions its occurrences. It has a reasonable basis in logic, being an indication of a market where upwards momentum has been building. It demands no subjectivity whatsoever: we merely buy when it happens and sell when it is reversed. The acid-test is, of course, how it has worked in practice. Looking at three leading equity indices – the FTSE 100, the DAX, and the Nasdaq 100 – the golden cross would clearly have been profitable between 1995 and 2013.
GOLDEN CROSS CHART
18 | www.financial-spread-betting.com | May 2014
In the case of the DAX, it produced six winning positions and two losers, and much better risk-adjusted returns than buy-and-hold. For the Nasdaq 100, it actually produced better returns than merely buying and holding, even before any interest earned on cash during out-of-the-market periods. Aptly enough, the golden cross has also done well in gold. Since 1995, buying upon golden crosses would have produced 959 points of profit in gold, compared to 818 points for passively holding gold. This would have involved five winning trades and three losing ones, with the former yielding more than three times the profit than the latter incurred losses. There is some merit in the golden cross, therefore.