Fools Gold(en) Cross

The problem with following one indicator when trading is that it is just that. An indicator. It is not a certainty or a fact. It may even work 99 out of 100 times. But that does not mean it will work for you in this instance. Look at the example of the Golden Cross. This pattern has been much touted lately as it is showing up in a lot of charts and is a large scale bullish indicator. It happens when the 50 day Simple Moving Average (SMA) crosses up through the 200 day SMA. But as the chart of HHGregg, $HHG, below shows it can be meaningless too, or worse. This stock was at its high at the

time of the cross. Since then it has dropped over 35%. Hardly a bullish move. I am not advocating that the Golden Cross is useless or not helpful. Instead that it is one tool in your Technical Analysis Tool Shed. For this stock there were other indicators that would have created a mosaic that could have prevented you from buying the Cross. It was at resistance, the Moving Average Convergence Divergence (MACD) indicator was still negative, the Relative Strength Index (RSI) had just made a lower high. I would have advocated for it as a long set up as it approached 16.61 again, BUT ONLY ON A BREAKOUT TO A NEW HIGH. There were also signs that pointed to the rise to 16.61, when the MACD crossed positive in October with the RSI moving above 60 into bullish territory and the 50 day SMA shifting to sloping upward as it made a new high over the September high. These signals could have failed as well, as they are not a guarantee either.

Expand your tool kit, build a mosaic and then follow price.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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