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.
“Now, more than three years after the financial crisis began, the rules are being rewritten, as falling asset prices, new regulation, and the resurgence of long-dormant competitive forces take their toll on profitability. While each sector within the financial industry faces its own challenges, the effects stemming from these general themes are likely to be felt for some time to come. We expect improvements in results to continue at a slow pace, as debt levels remain high, but in general we think the industry is on the road to recovery,” wrote Timothy Strauts in an ETF analysis on Morningstar. [Financial ETFs are Money in the Bank.]
Financial Select Sector SPDR Fund
Tisha Guerrero contributed to this article.