Dow Forms Bullish Technical Pattern
Markets were still very unstable on Monday (3/25/2019) after last Friday’s rout. But the Dow Jones Industrial Average (DJI), which is the most widely-watched market index by investors and the media alike, has recently formed a bullish ‘golden cross’ technical pattern. The actual cross occurred last week, but it’s been tentatively confirmed since then.
What is a ‘Golden Cross’?
A golden cross is generally defined by technical analysts as the point at which a shorter-term moving average crosses above a longer-term moving average. The most common combination of averages are the 50-day and 200-day. Therefore, a golden cross occurs when the 50-day moving average crosses above the 200-day moving average.
The golden cross is considered among the most bullish patterns by many traders, investors, and analysts. Like its evil cousin, the “death cross’, the golden cross doesn’t happen very often, especially on major indexes like the Dow. So when it does happen, it’s a rather noticeable event. The last time it happened for the Dow was in April 2016, after which the market embarked on a long bullish trend.
What May Happen Next?
Of course, there is no assurance whatsoever that a market will continue to rise after a golden cross forms. Failure to follow through to the upside results in what’s called a false signal, or a failed pattern. In fact, the risk of that happening this time is rather high. Growing worries about slowing economic growth and a potential recession on the horizon have placed some heavy pressures on the Dow and other key indexes.
As for those other indexes, the S&P 500, Nasdaq Composite, and even the small-cap Russell 2000, all have yet to form golden crosses. So, perhaps the Dow may be leading the pack technically towards a further market recovery. Or, it may just be the first of the major indexes to form a false bullish signal before falling back into another market correction.
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Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Technical Analyst at The Technicals
As a momentum stock trader, Luke focuses mostly on strong market moves. Luke has been trading the markets since the early 2000s, but still gets excited by big movers. Whether a surging large-cap tech company or meteoric penny stock, Luke tracks and trades winners. A technical analysis purist, Luke authors many of our Top Stocks & ETFs reports. Contact Luke