Tuesday, June 23, 2015

The Golden Cross Myth:

I happened upon an entertaining item – The Globe And Mail Wednesday June 17, 2015 Jennifer Dowty – CAN STANTEC’S ‘GOLDEN CROSS’ LEAD TO MORE GAINS? Dowty who is a CFA takes the time to explain the technical term “Golden Cross” to us less informed readers. Downty quotes from some unnamed source;

Definition: A ‘Golden Cross’ is a bullish technical indicator for a stock. It occurs when the stock’s 50-day moving average crosses above the 200-day moving average. When a Golden Cross occurs, it indicates that the short term price trend is rising.

So here is the problem – Dowty is just blowing smoke because the so-called Golden Cross is just another urban myth which has been promoted by the business media.I remind Dowty that CFA means Chartered Financial Analyst – not Charting Financial Analyst.

Any technical analyst who has back tested and/or traded on the Golden Cross knows – it generates a 50 per cent outcome – at best. That is because the 50 and 200 day crossover occurs about half-way through the price move. A back test on Stantec from November 2005 to date issued 7 signals with 3 winning trades and 4 losing trades. A back test on Suncor over the same period = 8 total signals with 4 winning trades and 4 losing trades. BlackBerry over the same period = 5 total signals with all five losing trades.

Our chart – daily of Stantac and the Golden Cross clearly displaying the late signals..

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