The Golden Cross is considered a representative signal of an upward trend reversal in the stock market. It is a chart pattern that occurs when a short-term moving average crosses above a long-term moving average, and is interpreted in technical analysis as the starting point for a price rise.
The term ‘Golden’ is attached because when the two moving averages cross, they resemble a golden cross on the graph. It is generally regarded as the most potent Golden Cross when the 50-day moving average crosses above the 200-day moving average. When accompanied by trading volume, the reliability of the signal increases further.
Moving averages are lines that connect the average prices over a specific period. The short-term average reflects recent price movements, while the long-term average shows the average price trend over a longer period. When the stock price rises, the short-term average reacts first, followed by the long-term average. In this process, when the short-term average breaks above the long-term average, it is perceived as a signal of a trend reversal.
For example, if a stock’s price is in a downtrend and then rebounds, forming a Golden Cross where the 50-day average crosses above the 200-day average, it can act as a buy signal in the market. Investors tend to see this point as a buying opportunity and expand their positions. There are many instances where the stock price continued on an upward trend for an extended period after the Golden Cross appeared.
Notably, after the 2009 global financial crisis, the S&P 500 Index formed a Golden Cross and maintained a bull market for several years. A similar pattern emerged shortly after the COVID-19 pandemic in 2020, suggesting a technical rebound.
However, the Golden Cross does not always guarantee a bull market. External factors or market sentiment and economic cycles can result in a temporary rebound, such as a ‘dead cat bounce,’ after which the price may decline again. Thus, the Golden Cross is only one auxiliary indicator and relying on it exclusively for decision-making can be risky.
For traders who value technical analysis, it serves as a major criterion for their trading strategy, but value investors or fundamental analysts consider a more comprehensive perspective, including corporate profitability, industry structure, and macroeconomic trends. Recently, the Golden Cross has also been included as one of the key signals in AI algorithms and quantitative analysis.
The Golden Cross provides a meaningful directional signal to market participants, but its interpretation and use vary depending on each individual’s strategy and risk tolerance. Instead of following the signal blindly simply because it has appeared, it is necessary to cross-verify it with various market indicators. Investment decisions should always be based on analytical and objective grounds.
