I have been talking quite a bit about the Golden Cross pattern lately and how it may impact the 2012 stock market. If you haven’t had a chance to, I recommend reading my 2012 Outlook. (The Golden Cross is one of my three main themes for 2012).
For those who are not familiar with the Golden Cross pattern, it is a very simple stock market pattern (followed by many in the financial industry) that occurs when a short-term moving average (such as the 50-day moving average) breaks above its long-term moving average (such as the 200-day moving average).
While the 50/200 day moving average Golden Cross does not “time” the bottom of a market cycle perfectly, it does give conservative growth investors a good confirmation that a new upward trend in the market has begun.
Currently, a Golden Cross pattern is emerging in the S&P 500 index — a very good buy signal for long term growth investors. I would expect some volatility at this level as some investors view this level as resistance, or a “ceiling” to the recent stock market rise, while other investors will try to get into the market early before the Golden Cross pattern is clearly defined.
However, my thoughts are that the stock market will not reverse back down as investors continue to reallocate their portfolios back into equities after a strong January stock market performance.