When it comes to technical analysis, moving averages are essential.
For example, many traders rely on the 50-day and the 200-day simply moving average.
Bullish Golden Cross
For example, we can spot a bullish “golden cross” when the short-term moving average, such as the 50-day crosses above the longer-term average, such as the 200-day. When this happens, we’ll typically see a move higher in a stock or an index.
We’re seeing this on the Russell 2000 small cap index at the moment.
There’s “renewed optimism among investors that the current economic expansion has room to run, benefitting small cap stocks that are perceived as more sensitive to the economic cycle, as well as “value” stocks that are inexpensive relative to a intrinsic measure of their worth, like price-to-book or price-to-cash-flow, as noted by MarketWatch.
Bearish Death Cross
A bearish “death cross” appears when the short-term average, such as the 50-day crosses below the longer-term average, such as the 200-day. When this happens, we’ll typically see a move lower in a stock or index.
However, we must also consider these are lagging indicators, and often late to the game.