Getting the Market Right: Ryan Fitzwater on How to Spot a Golden Cross
Editor’s Note: This video was taped back in April. It uses a golden cross on a particular stock as an example, but that movement may no longer be relevant to the stock’s trajectory. Please use this video as an educational resource, not as an active investment recommendation.
SM: Our guest this week is The Oxford Club’s Director of Research, Ryan Fitzwater. He’s here to talk about moving averages and how they define a golden cross. What are moving averages, and what is a golden cross?
RF: It’s a great question, Steve. After I perform fundamental analysis on a stock I like, I use a momentum indicator called a golden cross. It uses a simple moving average indicator to pick my entry point.
The most commonly used moving averages are the 50-day and 200-day periods. Think about 50 days and 200 days, and average the price of a stock over those time periods.
In general, golden crosses over large time periods tend to form more lasting breakouts. For example, when the 50-day moving average crosses above the 200-day moving average on an index like the S&P 500, that’s one of the most popular bullish market signals you can get.
Day traders commonly use smaller time periods, like the five-day and 15-day moving averages, to trade intraday golden cross breakouts. The time interval of these charts can be adjusted all the way down to the minute, but what I like to look at is the 50-day and 200-day moving averages for stocks.
SM: You have a chart for us. Let’s put it up on the screen. What stock is it?
RF: Here we have AmBev (NYSE: ABEV). It’s a major beer and soft drink maker. It helps produce big names like Budweiser, Corona and Pepsi, among many other brands. And when you look at the chart, in April of last year, a golden cross hit. You can see that the 50-day moving average - the green line - crossed above the 200-day moving average – that’s the yellow line.
AmBev shot up 20% in the months that followed. Then the stock pulled back; you can see the reversal where the 50-day moved below the 200-day.
Then in April 2017, we saw a new buying opportunity. AmBev’s 50-day moving average crossed over its 200-day again. That’s the power of the golden cross. It helps you determine an entry point on a stock that you’re eyeing up.
But this isn’t the only metric you should focus on. You always want a nice balance of financial metrics to fully evaluate a stock. But I love to use this momentum indicator to determine when I’m ready to pull the trigger on a new pick.
SM: Tell me, how often does this golden cross predict an upward move?
RF: That’s the thing – it’s a lagging indicator in some cases, but in many cases it’s a great indicator if you like many other things about the company. Is it growing sales? Are earnings growing? If they also have a golden cross hit, that’s a great sign from a technical and fundamental standpoint.
SM: Where can our Members find this? If one of our guys or women wants to go out and look at one of these charts, where can they do it?
RF: There are two places. The first one is a free site, it’s called Finviz.com. It’s one of my favorite free sites. It has a screener that actually allows you to pinpoint golden crosses. You can set the screen to look for stocks that just had a 50-day moving average cross above a 200-day.
Then you’ve got your brokerage account. You have to check out your brokerage account. It should have a feature like this as well. My Scottrade account has it, and I know a lot of the other major online brokers do as well.
SM: So if they need help finding this, they can call their broker, and they should be able to walk them through it?
SM: OK, great. So it’s the 200-day moving average, the 50-day moving average and the golden cross as an indicator of an upward move. Correct?
RF: You got it.
SM: That’s really great information. I don’t think I’ve ever heard a simpler explanation. I’ve seen many more complex ones for this cross thinking. Ryan, as always, thank you so much for your input.
RF: Thanks for having me on, Steve.
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