writes that with “golden crosses” evident on the charts for major averages and high-volume breakouts happening with regularity, those who question the rally shouldn’t trade aggressively against it.

I recently wrote about the "golden cross" pattern (50-day moving average crossing back above its 200-day moving average) occurring on the S&P. Both the Dow Jones Industrials and the Nasdaq 100 had flashed this bullish signal back in early January and December, respectively. The Russell small caps and Nasdaq Composite were lagging but on the move.

As this strong bullish uptrend remains in effect, we know have the Russell and Nasdaq "catching up," as they too have recently signaled golden crosses. According to my charts, the S&P midcaps are just about to signal as well. Only the NYSE Composite Index appears to be lagging more so.

See related: Golden Cross: Reliable in Any Market

So what’s that mean? Golden crosses have a tendency to reflect a longer-term bullish environment for stocks, however, in my experience, there can be a shorter-term bearish correction soon after.

This correction is what I refer to as a "snapback," because of the lagging nature of moving averages. More often than not, when a moving average crosses over another, price itself is already extended in a strong directional move, and is poised for some sort of corrective/consolidation action.

Now that the majority of the major indices (SPX, Dow, Nasdaq 100, Nasdaq Composite, and Russell) have all signaled golden crosses, I’d suspect this uptrend starts to subside here in mid-February.

As of last week, the SPX closed at almost +6% above its 50-day simple moving average; not a "hard" sell signal by any means, but historically, a sign that the market is overbought and ripe for some sort of correction/consolidation phase.

There are 169 stocks in the S&P 500 that are up more than 10% since Jan. 1, 2012, while 47 are up more than 20%. The biggest gainers in the S&P 500 with returns greater than 35% since Jan. 1 include Bank of America (BAC), Eastman Chemical (EMN), Netflix (NFLX), Sears Holding Corporation (SHLD), Textron (TXT), and Whirlpool Corp. (WHR).

It’s also interesting to note that these largest gainers are all coming off destroyed/weak chart patterns during the latter half of 2011.


Click to Enlarge

Bottom line is that the market is strong and stocks are acting great, as there are numerous uptrends in effect along with breakouts on heavy volume. That type of action would have me believe that the 2011 peaks of 1356 (July) and 1370 (May) will likely be challenged at some point during the next few weeks.

There’s no reason to expect or anticipate any sort of major correction until we start to see some heavy distribution days take hold, sending the SPX back below its rising 20-day exponential moving average (1318) for starters.

Fibonacci and Gann lovers may want to note that from a time perspective, we are looking at approximately 89 days off the Oct. low, 36 (a natural square of 6 x 6) days from the December low, and about 52 off the late-November low (55 being a Fib #), so overall, there’s some confluence here the next few days.

I believe we are also near a full moon, for what it’s worth.

By the Staff at

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center