Saturday, August 15, 2009

Golden Cross In The SP-500

On August 10 this past week, the 50dema of the SP500 crossed up the 200dema forming what is commonly known as a golden cross. What is particularly interesting about the current cross is that it is accompanied by 3 levels of support: 1) the June high of 956, 2) the rising 50 and 200demas with the 50 currently around 952, and 3) the rising trendline currently around 932.

Looking back to 1998, there has only been one whipsaw in this signal, which occurred at the 1998 bear market low. Trading near misses would have been very profitable over the last 10 years, ie going long just when the averages were about to cross down or going short just when the averages were about to cross up, so the recent spate of bearishness attending the failed head and shoulder top in July was probably not misplaced even if it was widely followed.

The question that arises now is whether or not we will see one of those rare whipsaws. My guess is that we will not. Rather, based on the cycles that are playing out, I expect we may see a near miss (the 50dema will nearly cross down the 200dema) in December or January, which will be a buying opportunity.

What we are seeing at the moment is a very bullish configuration of the 10 month cycle. The mid-cycle trough came early, and the second high in the cycle has made new highs. This foretells higher highs in a least the first rally off of the next 10 month cycle low due in January 2010.

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