Simply defined by Investopedia, “A golden cross is a bullish breakout pattern formed from a crossover involving any stock or commodities short-term moving average breaking above its long-term moving average or resistance level.”
To clarify the requirements for a correct formation and identification of this pattern involves any cycle length (minutes, weekly, monthly) of chart data. It also utilized any time cycle of the moving averages themselves. The key is that the shorter-term moving average must crossed above a longer-term moving average to be called a golden cross.
The First Occurrence of A Golden Cross
On November 26th, 2018 a golden cross was identified in the February contract of gold futures. In this case it was the 50-day moving average which crossed above the 100-day moving average. Gold was trading at approximately $1216, however after the formation of the golden cross price movement was exponentially faster.
In fact, it only took until December 18th, 2018 before gold pricing would cross above the 200-day moving average, and it did so when gold prices reached $1259 per ounce. It is this average which market technicians utilize to ascertain whether or not a stock or commodity is in a defined long-term trend or not.
On January 18th we identified a golden cross in the February futures of gold, wherein the shortest-term moving average we use (50-day), crossed above the 200-day moving average.
It Must Be Déjà Vu
One day after the identification of a golden cross (50- and 100-day) in the February contract, a “golden cross” followed in suit. April gold trading at $1230 per ounce at the time of the “golden cross”.
Roughly 11 days after the occurrence of a golden cross in between the 50- and 200-day moving averages April gold followed suit. On January 29 the pattern developed once again.
Although it is a well-known fact that moving averages are intrinsically lagging indicators. They are widely used as benchmarks to determine whether or not a stock or commodity is trading in a a defined trend.
A short-term bullish trend, or short-term bearish uses the 50-day moving average. If pricing is above the average it indicates a short-term bullish trend, reciprocally if current pricing is below the average it is considered to be in a short-term bearish trend. The same is true for a 200-day moving average, as it the benchmark used to determine a long-term bull or bear trend.
Wishing you as always, good trading,