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« Learn to Trade Emini Futures - Emini Podcast 02/02/12 | Main | Learn to Trade Emini Futures - Dynamic Support And Resistance »
Wednesday
Feb012012

Learn to Trade Emini Futures - The Golden Cross

(QQQQ)(DIA)(SPY)(GLD)(SLV)

Today in the S&P500 we witnessed an occurrence akin to spotting a bald eagle which only happens once in a blue moon or so - The Golden Cross!

THE GOLDEN CROSS 

The "Golden Cross" aside from being the polar opposite of its evil twin the "Death Cross" is best described as follows:

On a daily chart of the S&P 500 (SPX.X)($SPX) the 50 period Simple Moving Average crosses above the 200 period Simple Moving Average. 

That's it? Yes. Is it a big deal?

Let's look at the statistics and then you can arrive at your own conclusion. Since 1950 the "Golden Cross" has appeared 31 times. The evil twin "Death Cross" (50 Period SMA drops below 200 Period SMA) has shown up 32 times. I don't want to spoil your numeric joy ride but let me say this -

In the past 62 years there have been 63 crosses total. That fact alone is enough to keep me up all night  blogging, but I digress.

One quick question - "Is the market higher or lower today than it was in 1950?" hmmm...

Without even breaking out the calculator it seems that one twin has more power than the other. Let's drill the numbers and figure it out.

In the 12 months following each of its 32 appearances, the Death Cross has led to an average gain on the S&P 500 of 3.8%. In the 12 months following the Golden Cross the S&P 500 has risen an average of 10.2%. hmmm...

So are they both good for business? In a sense, yes.

What I want you to consider here is that the S&P 500 is a "Best of Breed" index. As the name suggests, the S&P 500 consists of 500 companies from a diverse range of industries. Contrary to a popular misconception, the S&P 500 is not a simple list of the largest 500 companies by market capitalization or by revenues. Rather, it is 500 of the most widely held U.S.-based common stocks, chosen by the S&P Index Committee for market size, liquidity, and sector representation.

"Leading companies in leading industries" is the guiding principal for S&P 500 inclusion. A small number of international companies that are widely traded in the U.S. are included, but the Index Committee has announced that only U.S.-based companies will be added in the future. The S&P 500 is a "market-capitalization" weighted index. (Think of market cap as the price you would pay to buy all shares of a single company.)

The S&P 500 represents approximately 70% of the value of the U.S. equity market. The S&P 500 has significant liquidity requirements for its components, so some large, thinly traded companies are ineligible for inclusion. Because the index gives more weight to larger companies, it tends to reflect the price movement of a fairly small number of stocks.

So, if we are constantly sifting the field to make sure only thoroughbreds are in the running, then of course over time the value of the index will rise no matter how many "Death Crosses" are thrown at it. Does that make the "Golden Cross" a sure fire winner? No.

Unless the economy and/or world at large implodes, the index over time is going to rise. Period.

Let me give you one more interesting statistic as it relates to this phenomena. Since 2003 we have seen 5 Crosses in each direction. In the 12 months following a Golden Cross the market has risen 10.1%. The Evil Twin? Only up 6%. Given the historical correlation and bumpy ride we've had over the past decade, it's easy to see why everyone is so excited. Not only do we have the , we're in an election year.

From a historical perspective markets do rally in Presidential election years. Over the past 112 years (28 election years) the Dow Jones Industrial Average (DJIA) has produced an average gain of 7.3%. Toss out 2008 when we were already in the midst of a recession and it jumps to 8.8%. Two-thirds of the periods were positive for the market, while election years with major losses were rare. Election years that showed double-digit gains outnumber those with double-digit losses by nearly 3:1 – and only one of those double-digit losses occurred after 1940.

By the way, at CFRN we had our Golden Cross back on December 21st. Maybe that's why they call them the Futures?

So put all that in your political pipe and smoke it while you endure the pullback.

What I really wanted to address tonight was far more mundane. I was going to show you a way to trade the market today without being overly concerned about yesterday or tomorrow. I know...

Boring. But guess what? Some of the wealthiest people I know are BORING. There has to be a lesson in there. Since I'm out of space and bandwidth, I will throw out just one chart from today's session and then we will start our next series on the CF_DMT indicator tomorrow.

  • Direction

  • Momentum

  • Trend

Can one Indicator tell you all three? You be the judge -

CFRN DMT House Rules -  Pierce the envelope from the bottom? Look for a 5 point move.

Here's a taste, I'll be back with more tomorrow.

 

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Emini Podcast for Wednesday 02/01/12

Reader Comments (2)

Boy, are you CLUELESS, David Williams!! You truly aren't even aware of the Obama-initiated gov't housing/mortgage programs that have been in effect for the last 2 years?! Are you serious?! Boy, you're either the most ignorant person in the world, or are as big of a liar as Limbaugh and Hannity. And you call yourself a Christian?! Obviously, you don't truly believe in a God or his rules, or you'd be going to hell. Unbelievable...

Hint: do a quick google, and limit it to the previous year or two years. Look up HARP and HAMP. Moron, or as with your trading, wherein today you avoided a 2.25 S&P stop, yet got filled at a 1.00 profit when it didn't trade through it (bec. you're blessed, I guess), you're just a liar.

Feb 2, 2012 at 11:06 | Unregistered CommenterJack Jensen

I am a Democrat but you were very rude in your comment above; there is no need for name calling. Mr. Williams might have different political view points but he is the master of markets and he has helped so many of us who are trying to learn about the markets. The whole team of CFRN are true Christians and I consider them to be sent by God to help us with our trading. Please sir you are not in the position to judge who is and who is not a Christian; only God is. We are all brothers and sisters irrespective of our political views and we should all try to get along.

Please sir, be respectful and no name calling.

We love you David and CFRN!! Your service and help is really appreciated!!

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