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Aug 3rd, 2010: Death Cross or 2nd Golden Cross?

Posted by pugsma on August 3, 2010

10:55 am EST:  Of course the perma-bears have been out since early July talking up the so called “Death Cross” on the major indices.  The Death Cross is when the 50-day SMA drops below the 200-day SMA.  And it is the inverse of the Golden Cross, where the 50-day SMA rises above the 200-day.  In late June 2009 the first Golden Cross of the new bull market occured.  At the time the SP-500 was falling and heading towards a eventual inflection point of 869.  Shortly after the 1st Golden Cross the SP-500 rallyed for 10 straight months climbing from 869 (early July 209) to 1220 (April 2010). That was a 351 point (40%) gain if you just simply traded SPY on the 1st Golden Cross.

OK, so let’s take a quick look at the where the SP-500 sits right now.  The Death Cross occured on July 1st; ironically the same day the SP-500 bottome at 1011.  Since then the 50-day SMA continued to fall, unitl the past couple of days and now it’s starting to turn back up again at 1083.  The 200-day SMA has flatten out and will provide an opportunity for the 50-day SMA to play catch-up.  So we are lookning at the potential for a 2nd Golden Cross if the SP-500 can maintain momentum above the key 1102 to 1107 gap support left open by yesterday’s strong push higher.  The 2nd Golden Cross should be good for at least as much gain at the 1st one, assuming this is the start to Primary Wave 3, P3, higher and my target above 1575 is met by 2012.  See my Long Term View here.

Also, notice that the 20-day SMA has already cross above the 50-day SMA, which is a near term bull cross as well.

SP-500 Daily Candles (10:33 am):

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