Bitcoin (BTC) and Wall Street's benchmark equity index, the S&P 500, are on the verge of hitting an easy-to-track bullish technical signal, the golden cross, that often makes traders giddy with delight.
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A golden cross occurs when the 50-day simple moving average (SMA) of the security's price moves above its 200-day SMA, producing a cross on the price chart. Because moving averages are backward-looking indicators, the signal tells us only that the market's short-term gains have surpassed its long-term gains. Still, chart analysts and traders see it as a harbinger of higher prices over the long run.
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"The winds of change have started to blow with the increasing likelihood of bullish golden crosses in the near future," analysts at Valkyrie recently noted in a newsletter, referring to the impending crossover on the daily bitcoin and S&P 500 charts.
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Bitcoin will likely see its first golden cross since September 2021 in the next week or two, according to charting platform TradingView. Meanwhile, the S&P 500's averages appear on track to produce the golden cross on Thursday.
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The concurrent appearance of the golden cross on bitcoin and the S&P 500 might motivate trend-following crypto traders to hit the market with fresh bids. Bitcoin has evolved as a macro asset since early 2020 and tends to move more or less in line with the S&P 500.
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Traders, however, should note that while bitcoin's big rallies often start with a golden cross, not all golden crosses lead to a big rally.
Bitcoin has seen eight golden crosses to date, of which three, confirmed in February 2012, October 2015 and May 2020, were on point, presaging at least a yearlong bull market that saw prices rally between 100% and 350%, data from TradingView shows.
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On the other hand, golden crosses of July 2014, July 2015 and February 2020 were bull traps as the cryptocurrency crashed violently into a death cross in the following weeks/months. The death cross is the opposite of the golden cross and represents a bearish shift in the long-term trend.
The remaining two golden crossovers, formed in April and September 2019, were undecisive, with prices rising sharply in the following two months only to slip into a death cross later.
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The S&P 500's past data paint a similar picture. The index has seen 52 golden crosses since 1930. In that time, stocks rose in the following year 71% of the time, according to a MarketWatch report quoting Dow Jones Market data.
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So, the golden cross appears unreliable as a standalone bullish indicator and should be read in conjunction with other factors, mainly the Federal Reserve's policy, which is becoming less hawkish with each passing month.
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As expected, the central bank stepped down to a smaller 25 basis point rate hike on Wednesday, lifting the benchmark borrowing cost to the new range of 4.5% to 4.75%. During the post-meeting press conference, Chairman Jerome Powell acknowledges that "inflation has eased somewhat" while downplaying the risk of tightening-induced economic recession, bringing cheer to risk assets.
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According to ING analysts, the Fed is likely to deliver another 25 basis-point increase in March and then pause the rate-hike cycle that rocked financial markets last year.
