Since 2003, the Dow has been higher six and 12 months after golden crosses.
Just three short months ago, Wall Street was talking about the major market indexes forming a “death cross.” This week, however, the Dow Jones Industrial Average (DJI) just saw its 50-day and 200-day moving averages make a “golden cross,” typically seen as a bullish sign of things to come. As such, we decided to take a look at how the blue-chip index performs after a golden cross, historically, to see if this technical indicator really is a good omen for stocks.
The last time the Dow made a golden cross was in April 2016 — again, just three months after a death cross. Prior to that, you’d have to go back to December 2015 for a golden cross.
After both of those signals, the Dow went on to rally more than 13% over the next 12 months. The golden cross before that, in January 2013, preceded a 20.53% surge in the DJI over the next year. In fact, the index hasn’t been lower a year after a golden cross since 2002, according to data from Schaeffer’s Senior Quantitative Analyst Rocky White. Looking at post-2002 returns after golden crosses, the DJI has averaged a six-month gain of 7.08% and a one-year gain of 10%.
Looking at Dow stats since 1950, though, paints a slightly less rosy picture. A month after golden crosses, the DJI was down 0.16%, on average, and higher just over half the time. That’s better than the Dow’s average monthly loss of 0.3% after a death cross, but below its average anytime one-month gain of 0.68%.
It’s a similar story looking three, six, and 12 months out. After a golden cross, the DJI was higher at each of these checkpoints, with stronger returns than after a death cross — but not as strong as anytime. Of all four checkpoints, the index was most likely to be positive six months later, with an above-average win rate of 71.7%.
In conclusion, while the Dow’s returns after golden crosses since 1950 aren’t much to write home about, they exceed the index’s returns after the ominous-sounding death cross. And isolating the data to look at post-golden-cross signals since 2003, the Dow was higher six months and one year later 100% of the time, with stronger-than-usual returns.