The S&P 500 formed a bullish technical indicator on Friday, raising hopes that the index’s January rally is more than a blip.
The S&P 500’s 50-day moving average crossed above its 200-day moving average on Feb. 3, forming what is known as a golden cross chart pattern.
- The S&P 500 formed its first golden cross since July 2020 on Friday.
- A golden cross is a chart pattern that occurs when a short-term moving average (MA) crosses above a long-term one.
- A golden cross suggests an uptrend or the start of a new bull market.
- The S&P 500 golden cross comes less than two months after one occurred in the Dow.
A golden cross is a chart pattern that occurs when a short-term moving average (MA) crosses above a long-term one, and is a bullish breakout pattern. As long-term indicators carry more weight, the golden cross indicates a bull market could be on the horizon. That interpretation is reinforced by high trading volumes. The most widely used durations for the short-term and long-term MAs are the 50-day and 200-day MAs, respectively.
Golden cross formations using the 50-day and 200-day MAs aren’t seen frequently. The last time the S&P 500 formed a golden cross was in July 2020. The index went on to notch gains of over 50%, rising from a close of 3,185 on July 10, 2020, to nearly 4,800 in January 2022. That is why the formation of a golden cross in the S&P 500 can be such a significant development.
The formation could signal the beginning of a new uptrend or bull market. When a short-term moving average rises above a long-term one, it indicates market momentum is beginning to accelerate to the upside, setting the stage for a sustained rise in prices.
The golden cross in the S&P 500 comes less than two months after a similar crossover occurred in the Dow Jones Industrial Average (DJIA) (see chart below).