Moving Average Crossover Studies

On February 13, 2013 I was a guest on BNN’s Market Call and the host Michael Hainsworth observed that a stock under discussion had just posted a Golden Cross “buy” signal. According the stockcharts.com the golden cross is a signal where the shorter moving average moves above the longer moving average. Usually, this term is associated with the 50-day moving average crossing above the 200-day moving average. Conversely a Death Cross is a signal where the shorter moving average moves below the longer moving average. Usually, this term is associated with the 50-day moving average crossing below the 200-day moving average.

I surprised Hainsworth when I brushed off the signal to be useless with a batting average of about 50/50.

Today I am posting two unrelated charts with the two moving averages and the buy and sell cross over signals. The first one is a daily of MCD which illustrates the potential of selling low and buying high on the crossover signals. A SuperCharts back test from Nov 2010 to date displays no winning trades during the recent congestive period.

The second one is a daily of the GLD gold ETF which also illustrates the potential of selling low and buying high on the crossover signals. A SuperCharts back test from Nov 2010 to date displays no winning trades during the recent congestive period.

These moving average crossover studies (we old timers call the work departure analysis) will work on a trending stock or index – but so will almost any study. My experience is to monitor the maximum spread or departure of the two averages for better signals on over-bought and over-sold conditions.