It is commonplace in the business news community to talk about ‘Golden Crosses’ and ‘Death Crosses’. If you’re unfamiliar with these terms, they refer to moving averages (MA) crossing each other. More specifically they describe the movement of a security’s short term MA moving above the long term MA (Golden Cross) and the short term MA moving below the long term MA (Death Cross). A strong signal is issued when using the 50 day MA and the 200 day MA as it is generally considered a move away from bears to bulls or bulls to bears (respectively).
These tools are generally used to determine the trend of a security, but they can also be carried over into the relative world. The chart to the right is a relative strength chart of the S&P 500 (SPY) and Europe ex. UK (EZU) indices. When the orange line moves higher the Europe position is (relatively) beating the S&P, and when the orange line moves lower the S&P 500 is (relatively) beating Europe. The light blue line in the chart is the 50 day MA of the relative strength and the pink line is the 200 day MA of the relative strength.
This has been an extremely effective tool in establishing major trends in the Europe versus U.S. relationship. In 2003 we have a Golden Cross as the 50 day MA moved above the 200 day MA and established a bullish European trend (which continued for over five years). Then in 2007 we saw a Death Cross as the trend changed to favor the U.S. over Europe. Except for a brief period in 2009, this bullish U.S. trend remained in place until this month. With this indicator signaling a new trend favoring Europe over the U.S., you might want to start thinking about moving assets overseas.
Copyright: hypermania2 / 123RF Stock Photo