By Rodrigo Campos
NEW YORK (Reuters) – January has turned out strong for equities with just two trading days to go. If you’re afraid to miss the ride, there’s still time to jump in. You just might want to wear a neck brace.
The new year lured buyers into growth-related sectors, the ones that were more beaten down last year. The economy is getting better, but not dramatically. Earnings are beating expectations, but at a lower rate than in recent quarters. Nothing too bad is coming out of Europe’s debt crisis – and nothing good, either – at least not yet.
“No one item is a major positive, but collectively, it’s been enough to tilt it towards net buying,” said John Schlitz, chief market technician at Instinet in New York.
Still, relatively weak volume and a six-month high hit this week make some doubt that the gains are sustainable.
But then there’s the golden cross.
Many market skeptics take notice when this technical indicator, a holy grail of sorts for many technicians, shows up on the horizon.
As early as Monday, the rising 50-day moving average of the S&P 500 could tick above its rising 200-day moving average. This occurrence – known as a golden cross – means the medium-term momentum is increasingly bullish. You have a good chance of making money in the next six months if you put it to work in large-cap stocks.
In the last 50 years, according to data compiled by Birinyi Associates, a golden cross on the S&P 500 has augured further gains six months ahead in eight out of 10 times. The average gain has been 6.6 percent.
That means the benchmark is on solid footing to not only hold onto the 14 percent advance over the last nine weeks, but to flirt with 1,400, a level it hasn’t hit since mid-2008.
The gains, as expected, would not be in a straight line. But any weakness could be used by long-term investors as buying opportunities.
“The cross is an intermediate bullish event,” Schlitz said. “You have to interpret it as constructive, but I caution people to take a bullish stance, if they have a short-term horizon .”
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