November 27th, 2008

"Golden Cross" and OBV: An Update

“Golden Cross” Stocks

It’s been nearly four weeks since I last wrote about “Golden Cross” stocks – with good reason. The S&P 500 hit an interim high of 1005.75 on November 4 and over the following 12 trading days through last Thursday, the market declined 25.9% to 752.44! And during the last 4 days, the market has recouped 53% of that decline to 887.68.

As to be expected, the number of stocks that had successfully had the appropriate cross overs of their moving averages has declined from the peak of 262 to between 100-150. With the strength of the recent recovery move, the number has again broadened and, as of today’s close, stood at 181.

If you recall, my starting to write about “Golden Cross” stocks on October 17 as follows:

“Market sentiment is in the early stages of switching from negative to neutral. In the accumulation phase of the Market Life Cycle, few reliable chart patterns have developed, most stocks are far from making new highs (one of my favorite criteria for identifying upside momentum), traditional momentum scans offer few candidates and it is still too early for reliable relative strength filters (stocks movement relative to S&P 500). The common denominator of the early leaders in the early phases of the last bull market (2003-2007, as the Tech Bubble Crash was bottoming out), however, were stocks that formed “Golden Crosses” (where the 90-day moving average crossed above the 180-day moving average and closing price higher than both).”

I still track look for stocks that have made “Golden Crosses” because they are the ones most likely to deliver outstanding performance during the early phases as the market forms its base in preparation for the new Bull Market. So even the S&P 500 approximately at the same level as it was on October 23 (908.11 vs 887.68 today) the number of “Golden Cross” stocks has increased from 109 to 181 today.

When I look at several of my screens (New Highs, Relative Strength, Momentum, Daily Volume Surge, “Stocks on the Move”), they all include a large percentage of these “Golden Cross” stocks indicating that they’re doing according to several different metrics.

On-Balance Volume

On November 12, I wrote about this indicator as follows:

“Every up-leg of this bear market has been preceded and accompanied by a surge in volume. Since mid-October, volume has been continuously decreasing. The market can’t bottom and start moving up, even if it’s just a modest correction (+25-30%) unless those rare and infrequent up-days are accompanied by higher than average volume – that’s when the OBV can start to trend up. Now we know what to look: higher volumes on those rare up-days”

I can report that there’s been an improvement in the OBV; today’s OBV is slightly above the level it was on November 4, the last peak. This means that there’s been more volume on the days the four days when it’s closed up than over the previous 12 when the market closed down. While not conclusive, it does provide some encouragement that a short-term recovery is in process.

Note: Please send an email at guru at stock-chartist.com if you’re interested in a list of “Golden Cross” stocks as of yesterday’s close

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