Golden Cross In The S&P 500 Is A Bullish Sign For Stocks

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Back on July 2nd when the Death Cross formed on the S&P 500, I said…

“It’s just as likely to mark the end of a market correction as it is to indicate the beginning of a new bear market.”

As it turns out, the Death Cross did in fact mark the end of the correction.  The S&P 500 hit a low of 1,010 on July 1st.  Since then, the S&P 500 has shot up 18%.  It hit a high of 1,196 earlier this week.

Now a Golden Cross has formed on the S&P 500.

Does it mean the rally is over?  Not by a long shot!

The Golden Cross has been a much better predictor of future price movement than the Death Cross.

A Golden Cross has formed on the S&P 500 three times since 2003.  And each time the markets have gone on to rally higher over the next few months.

But that’s not all…

It looks like history is repeating itself.

Let me explain.

After the dot com bubble burst in 2000, the S&P 500 went into a bear market until 2003.  Then over the next year, the S&P 500 shot up 47%.  And eventually it rallied to new all-time highs in 2007.

But in 2004, smack dab in the middle of this 4-year bull market, a chart pattern very similar to what’s happening right now formed.

Take a look at this chart of the S&P 500 in 2004…


You can see a Death Cross forming when the 50-day moving average (solid line) crosses below the 200-day moving average (dashed line) in July.

Then a Golden Cross is formed in November when the 50-day crosses above the 200-day.

After this pattern formed, the S&P 500 went on to rally 8% to close out the year.  And by the time the bull market ended, the S&P 500 had rallied 38%!

Now let’s take a look at chart of the S&P 500 today…


You can see the Death Cross in early July.  And the Golden Cross in November.

Remember, the S&P 500 rallied more than 80% off the March 2009 low.

And now it’s forming a chart pattern very similar to what happened in 2004.

Honestly, it’s a little eerie how similar the chart pattern is.  In both cases, the S&P 500 rallied for a year.  Then pulled back causing a Death Cross to form.  Then four months later a Golden Cross forms.

And to top it off, elections were right around the corner both times this pattern formed.

This is just too spooky…

If history repeats itself, the S&P 500 should rally to close out 2010.  And the S&P 500 should continue to rally to new all time highs over the next few years.

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