In the world of technical trading, the “Golden Cross” patterns represent a technical shift that improves the intermediate-term outlook for a stock, ETF or index. Golden Crosses happen when a stock’s 50-day moving average crosses above its 200-day moving average.
The shorter, faster-moving trendline crossing above a slower and longer-trendline represents a transition from either a correction or consolidation of a stock’s price pattern. The development is often a bullish signal.
We scan the list of Golden Crosses daily, looking for stocks that are moving back in the stock market’s fast lane. As investors, we’re interested in the improved technical standing of these stocks as they are likely to represent the next group of relative strength leaders, offering us an opportunity to generate market-beating returns.
The following three securities — two stocks and one exchange-traded fund — are part of the list of recent Golden Cross opportunities identified by our behavioral valuation model.
Golden Crosses: Disney (DIS)
Disney (DIS) stock has been bolstered by strong revenue and earnings growth as the consumer discretionary and media sector maintain their growth in an expanding economy. DIS has rallied to the tune of 26% year-to-date after overcoming an earnings-related selloff that had more to do with the future of brands like ESPN than it did actual earnings.
With the summer correction behind it, Disney stock just experienced a Golden Cross last week, improving the shares’ outlook for the next six months. In addition to the Golden Cross, large short positions held against Disney stock suggests that it could soon experience a short covering rally as the stock breaks through the $120 level on its way to new all-time highs.
We expect the $120 level to serve as a launching pad that will likely see DIS trade as high as $140 over the next three to six months.
Golden Crosses: Cimarex Energy Co (XEC)
Energy stocks are among the most beaten-down in the market, but a few names within the group are showing signs of technical life. Among them is Cimarex Energy, which just completed a Golden Cross pattern after spending almost a year building a potential bottom.
According to historical results, XEC shares outperform their average performance over the six months following similar crosses. The table below details these results.
Short sellers have been actively adding bearish positions against XEC over the last year, building potential for a short covering rally as these bears will have to close their positions (by buying the stock) if it begins to show signs of a breakout.
The combination of bullish results from past Golden Crosses and potential for a short covering rally make XEC shares an attractive bullish option among the beleaguered Energy sector. Our model’s current targets favor a move to $150 as the sector view begins to improve.
Powershares QQQ Trust (QQQ)
The Nasdaq 100 Index has taken a leadership role in the market as large cap technology stocks are clearing the way higher. Recent strength in the Powershares QQQ Trust (QQQ) comes despite lack of participation by its largest component, Apple (AAPL) as stronger technology names like Microsoft (MSFT), Intel (INTC), Alphabet (GOOG) and Amazon (AMZN) are on the move.
Historically, Golden Crosses test well for the popular ETF as our results show that QQQ shares are trading more than 9% higher on average six months after the cross. This is 34% better than the average QQQ share performance since 2000.
Positive breadth and technical strength maintain QQQ shares as a buy among the major index ETFs. Current targets for the next three to six months favor QQQ shares trading to the $130 range and higher.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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