Research Case 3: The Golden Cross

Overview of System

No testing of traditional systems would be complete without a test of the “Golden Cross.”  The Golden Cross is one of the most popular moving average systems around (also referred to as the Death Cross when turning bearish).  Its simplicity is built around the “crossover” of the shorter-term 50-day (10-week) moving average over the longer-term 200-day (40-week) moving average.  A move of the 50-day moving average above the 200-day moving average is bullish, and a move below the 200-day moving average is bearish (Death Cross).    

The Research Question 

Can a system that uses a crossover of the 50-day (10-week) simple moving average and the 200-day (40-week) simple moving average generate greater consistent returns than a buy-and-hold strategy in the S&P 500 (ETF – SPY) with less risk over the same time frame?  

Rules

 Test Systems Signals: The Golden Cross system turns bullish or bearish with the crossing of the 10-week and 40-week simple moving averages.  A crossing of the moving averages typically signals the beginning of a changing of the trend.  The close on Friday of the week for confirmation. 

  • Bullish Signal: The 10-week simple moving average moves above the 40-week simple moving average. This results in a 100% investment in equities
  • Bearish Signal: The 10-week simple moving average moves below the 40-week simple moving average. This results in a 100% move to cash

Variables:

  • Trading volume should be monitored around the time of the cross to identify whether or not institutions are buying or selling equities
  • Significant resistance and/or support levels

Trackers Used

  • The system will use the ETF SPY which tracks the movement of the S&P 500

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Disclaimer

IMPORTANT!!!!  Notice & Disclaimer about any and all content I create, send, or share with anyone, in any form regarding this research:  

This is research.  This is not investment advice.  I cannot be any clearer about this.  I am researching these systems to document their performance in real-time over a period of years for further research.  Be aware that while these systems are commonly referred to in the media, the strategies involved may not be suitable for your situation or risk tolerance.  I am not offering YOU investment advice.  I am merely conducting research on the viability of these strategies and documenting them for future research.

I will not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, or incidental or consequential loss or damage) arising out of or in connection with any use or reliance on the information derived from this research.  The previous statement is here not only because the lawyers insisted, but because it is true.  Consider that I have no idea what your financial goals may be, I am unfamiliar with your risk tolerances, I do not know your personal income, age, savings, financial circumstances, dependents, net worth, what tax bracket you are in.  Heck, I do not even know where you live in.  There are some people who would find these things quite relevant.

I am merely researching alternative options for viewing the markets and documenting it for further research.