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

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  2. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  3. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  4. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  5. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  8. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  9. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  10. Insurance

    The 5 Biggest Russian Insurance Companies

    Discover the five companies that dominate the Russian insurance market, and learn a little more about their business operations and ownership.
  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
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!