The Markets Just Experienced A 'Double-Cross,' A Rare Bullish Sign For Stocks

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Everyone already knows about the golden cross in stocks, which occurred on January 31.  A golden cross occurs when the 50-day moving average crosses above the 200-day moving average.  This is a bullish technical momentum indicator.Not as many people are talking about the death cross in the CBOE Volatility Index, aka the VIX, aka the ‘fear index.’ A golden cross is the exact opposite of a death cross, which occurs when the 50-day moving average crosses below the 200-day moving average.  The VIX death cross occurred on January 24.

Liz Ann Sonders, Charles Schwab’s Chief Investment Strategist, thinks that the proximity of these two phenomena — a “double cross” — could prove to be a bullish indicator for stocks.

From Sonders’ latest commentary:

The VIX’s Death Cross occurred on January 24, 2012, and the S&P 500’s Golden Cross occurred on January 31, 2012, for a spread of only a week. I looked back to see how often an S&P 500 Golden Cross had occurred within a week or two of a VIX Death Cross, and it’s only happened once since 1990 (the history of the VIX).

Although this was the closest the two crosses have ever occurred, there was a similar period in October 2010, when the crosses occurred within 14 days (similarly with the VIX Death Cross pre-dating the S&P’s Golden Cross). That was followed by stellar markets returns, with the S&P 500 up 8.5% three months later and more than 13% six months later.

Here are some charts:

charts

Photo: Charles Schwab

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