A golden cross-buy signal occurs when the 50-day EMA crosses above the 200-day EMA. The bullish technical signal indicates the start of an intermediate-to-longer term uptrend.
The Golden Cross Index (GCI) is a longer-term technical indicator that shows the percentage of stocks in an index with golden cross buy signals. It is a dual indicator, a breadth, and an overbought/oversold indicator, displaying the internal health of the market and the extent of an index trading above or below its intrinsic value.
Like the Golden Cross Index, the Silver Cross Index (SCI) is a shorter-to-medium term technical indicator that records the percentage of the stocks in an index that fulfills the conditions of the 20-day EMA crossing above the 50-day EMA.
Golden and silver crosses are helpful to traders and investors as they better identify the dominant trends and filter the noise and fluctuations in the marketplace, resulting in stronger buy signals.
As with any technical indicator, divergences between the technical indicator and the price are crucial to the sustainability of primary trends and trend reversals. Also, these indicators deployed with other technical indicators and disciplines can improve decision-making.
Positive divergences are developing in the longer-term Golden Cross Index (GCI) and the short-term Silver Cross Index (SCI). For instance, Jun/Jul 2022 lows in both indicators are higher than the previous Feb-Mar 2020 pandemic lows, suggesting higher-low patterns and the potential for a market bottom.
On a short-term basis, the explosive 2-month summer rally has led to SCI indicator trading at overbought levels. It warns of a near-term consolidation before the resumption of the bull rally.
From a longer-term perspective, the GCI indicator remains at oversold levels, suggesting the summer rally may be a market bottom and the start of a sustainable longer-term bull.
Remember, a bear market ends when anyone that wants to sell has sold. It remains a difficult task to know when this exact scenario will occur.
We may have a better idea if this is a sustainable bottom during the seasonality weakness period from September to October and ahead of the pivotal November mid-term elections.
In summary, the two technical indicators, Golden Cross Index and Silver Cross Index, show potentially bullish signs of positive divergences.
If the higher-low patterns sustain into the September-October timeframe, it reaffirms June 2022 low as the market bottom and sets the stage for another 4-year mid-term election year bottom.
On a near-term basis, the SCI indicator warns of a near-term overbought condition that may lead to another market top, at least from a shorter-term perspective. The impending consolidation may hold the keys to the outlook of the 8-month cyclical bear decline.