A technical signal known as the “golden cross” appeared recently for financial-sector ETFs such as Financial Select Sector SPDR Fund (NYSEArca: XLF). Chartists say it could be a positive indicator for bank stocks and the market in general.
The golden cross revealed itself in one of the most heavily-traded financial ETFs just a few weeks after showing up for the broad market stock index, the S&P 500. The golden cross indicates that the stock or fund’s 50 day-moving-average has moved above the 200 day-moving-average. [Sector Rotation Favors Riskier Assets]
The technical signal is an indicator that the sector or fund in question has momentum and will continue to be bullish even up to a year from the date of the cross. Brendan Conway for Barron’s reports that since 1975, the S&P 500 has shown a gain one year after the appearance of a golden cross about 94% of the time, according to Schaeffer’s Investment Research. A gain of about 13% can be considered average. [‘January Barometer’ Bodes Well for Stock ETFs]
Textbooks on technical analysis give credit to Japan as the origin of the phrase golden cross, report Brendan Conway and Tomi Kilgore for The WSJ. There is also a counter-movement, the “death cross,” where the 50 day-moving-average falls below the 200 day-moving average.