In the past, significant increases in the value of bitcoin have often been preceded by a technical signal known as a "golden cross." This signal is considered bullish by traders and can generate excitement. However, it is important to note that not every golden cross has resulted in a large rally for bitcoin.
Recently, both bitcoin and the S&P 500 index, which is widely used as a benchmark for the stock market, are approaching the golden cross signal. This signal is considered straightforward to track and can be a positive indicator for traders.
A golden cross is a technical signal that is produced in the charts of a security's price when the 50-day simple moving average (SMA) moves above its 200-day SMA. This crossover is viewed as a bullish signal, as it indicates that the market's short-term gains have surpassed its long-term gains. It is important to note that moving averages are backward-looking indicators, so the golden cross only signals potential for higher prices over the long term.
Recently, analysts at Valkyrie noted the increasing likelihood of bullish golden crosses appearing in the near future, specifically referring to the impending crossover on the daily charts of both bitcoin and the S&P 500. This has created a sense of anticipation among traders and chart analysts.
According to charting platform TradingView, bitcoin is likely to see its first golden cross since September 2021 in the next week or two. Meanwhile, the S&P 500's averages appear to be on track to produce the golden cross on Thursday.
The simultaneous appearance of the golden cross on both bitcoin and the S&P 500 has the potential to encourage trend-following cryptocurrency traders to enter the market with new buying orders. Since early 2020, bitcoin has developed into a macro asset and tends to follow the movements of the S&P 500.
However, traders should be aware that while the golden cross is often a prelude to significant rallies in bitcoin's value, not every golden cross results in a large increase in price. This highlights the importance of considering other factors and conducting thorough analysis before making any trading decisions.
It is also important for traders to keep in mind that the golden cross is just one of many technical signals and should not be relied on as the sole indicator for making trades. The performance of bitcoin and the S&P 500 should be evaluated in the context of broader market trends and other relevant information.
However, there have also been instances where the golden cross served as a "bull trap." For example, the golden crosses of July 2014, July 2015, and February 2020 were followed by violent crashes and the emergence of a "death cross," which is the opposite of the golden cross and represents a bearish shift in the long-term trend.
It is important to note that while the golden cross can be a useful signal, it is not a guarantee of future performance. Traders should carefully consider all available information and market trends before making any investment decisions based on technical signals such as the golden cross.
White Line Presents 200 day SMA while other line represent 50 day SMA
Of the eight instances of a golden cross in bitcoin's price history, the remaining two crossovers in April and September 2019 were inconclusive. Following these crossovers, prices rose sharply over the next two months but then slipped into a death cross.
A similar pattern can be observed in the S&P 500. According to a report by MarketWatch that cites data from Dow Jones Market, the index has experienced 52 golden crosses since 1930. During that time, stocks rose in the following year 71% of the time.
Given this information, it becomes clear that the golden cross is unreliable as a standalone bullish indicator and should be considered in conjunction with other factors. One significant factor to consider is the Federal Reserve's policy, which is becoming increasingly accommodative with each passing month.
This trend was reinforced by the central bank's recent decision to reduce the rate hike to 25 basis points, bringing the benchmark borrowing cost to a new range of 4.5% to 4.75%. During the post-meeting press conference, Chairman Jerome Powell acknowledged that "inflation has eased somewhat" and downplayed the risk of a tightening-induced economic recession, bringing cheer to risk assets.
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