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One technical development coming up on investors’ radar is a “golden cross” of the Dow Jones Industrial Average’s 50- and 200-day moving averages. This occurs when the short-term (50-day) average overtakes the long-term (200-day) average, and both are rising. This will be the first golden cross since early January 2012.
A golden cross sounds kinda great, but Bespoke Investment Research analysts rifled their database to see if it really augurs a better market ahead — or is essentially a random event. They come down largely on the side of random, as it has been about as predictive of prices as a flip of a coin.
Above is the Bespoke table showing the dates of all Dow Golden Crosses over the last 50 years. Next to each date, the analysts highlight the index’s return over the next week, month, three months and six months, and at the bottom they show the average and median for each time period. They also show the percentage of the time the index has been positive over each period, and at the very bottom is the average return for all one-week, one-month, three-month and six-month time periods.
The data show that a Dow golden cross has largely led to random results. However, there is one positive: The Dow has done very well following the last two golden crosses (in October 2010 and January 2012) and after the last seven golden crosses has been positive in the following six months.
Over the fullness of time, it has not necessarily been a big deal. But its recent history and current set-up make me think that the golden cross could duplicate its 2010 and 2012 success and augur a surprisingly strong market ahead. Particularly since the credit indexes — shown above in charts of the iShares IBoxx $ Invest Grade Corp Bd Fd (NYSEARCA:LQD) and SPDR Barclays Capital High Yield Bnd ETF (NYSEARCA:JNK) — are trading so strongly now as well. Credit tends to lead stocks, and there’s no reason that correlation should change now.
This is one of the reasons I’m loaded up on the buy side in my Trader’s Advantage positions, and there’s one stock opportunity I want to share with you today.
Whole Foods Markets (WFM) is the country’s largest organic foods grocery chain. Shares have been cut almost in half over the past year due to slowing growth and rising costs, but have clearly found traction in the $30 area.
Whole Foods shares gave back 1.5% Monday as grocery buyers took a day off, but that means WFM looks great for rebounding up as sentiment improves for food providers of all kinds.
Buy Whole Foods at around $31.10 or less.
Set up to sell all at my final target $33.50, and set a stop at $2900, good till canceled.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.