These are very powerful bullish and bearish long-term signals that every trader should know. I posted this in the PCX thread but believe it is deserving of its own thread.
A golden cross is a very bullish long-term indicator that happens when the 50dma (short-term data) crosses above the 200dma (long-term data). A lot of stocks are getting these golden crosses because the 200dma incorporates data going all the way back 10 months while the 50dma is a collection of just the last 2 and a half months. Are you sure the 200dma goes back 10 months? Yes! This is so because there are 4 weeks in a month and 5 trading days in a week so only 20 days of data is collected per month on average). So as of today (mid-July 2009) the 200dma takes data going back all the way to mid-September 2008 while the 50dma is a collection of data going back just to beginning of May. A death cross is the same thing except when the 50dma crosses below the 200dma. The golden cross is coming very soon for PCX (a stock I currently own). Here is the chart for PCX with just the 50dma/200dma for easy reading:
Just to show you guys how powerful of an indicator these golden and death crosses are I’ll post a chart of the Dow and the S&P showing what would have happened if you bought at the last golden cross and sold at the last death cross:
Selling at the death cross would have gotten you out of the market (or short the market) at about 13,400 points! We are currently at 8,225 but bottomed at 6,547 points.
Selling at the death cross would have gotten you out of the market (or short the market) at about 1,500 points! We are currently at 887 but bottomed at 676.