Testing the “Golden Cross” and “Death Cross” on the SPY

The investing community is surprisingly divided on the usefulness of technical analysis, so today I wanted to put a few classic scenarios to the test. Namely, the “Golden Cross” and the “Death Cross.”

Both of these are moving average crossovers. The “Golden Cross” occurs when a stock or index’s 50-day moving average crosses up and over its 200-day moving average. The “Death Cross” is the inverse, where the 50-day line crosses below the 200-day.

Both events indicate that shorter-term price action (momentum) has overpowered the longer-term trend, with the expectation that the longer-term trend will follow suit. In other words, a bullish cross signals that short-term price action is favorable and the expectation is that it will precede a rising longer-term average (and continued rising share prices).

By that same token, the “Death Cross” indicates that short-term price action is overwhelming support levels and points to even lower prices ahead.

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Some analysts, like my former value-investing colleague Bruce Kaser, view technical analysis as little more than lines on a screen (online communities derisively refer to it as “crayon drawings”). If you’re a value investor, price movements are an opportunity to buy when the market is undervaluing your stocks or sell when the market is overvaluing them. In either case, the value of the underlying company is unchanged. Benjamin Graham used the analogy “Mr. Market” to explain that viewpoint.

On the other end of the spectrum are the high-paced day traders who can trade anything under the sun if they’ve got the right combination of technical indicators and studies. Most individual day traders do not beat the market.

As for Cabot, our analysts fall somewhere in the middle, but Mike Cintolo’s approach to technicals is a healthy one. Just one piece of the puzzle to be used in a more holistic approach. In Cabot Growth Investor, Mike will sometimes refer to the “SNaC” approach, which is to say the “Story, Numbers and Chart.” The chart doesn’t tell the whole story, but it tells part of it.

To find out who’s right, let’s dive into some numbers on the S&P 500 ETF (SPY) using moving average crossovers as buy and sell signals.

Testing the “Golden Cross” and “Death Cross” as Buy and Sell Signals

For our exercise, we’ll compare performance over the last five years. A golden cross will trigger a buy on the next trading day at the open. A death cross will trigger a sell on the next trading day, also at the open.

As you can see on the chart above, there are four instances where the 50-day moving average crossed over the 200-day moving average in the last five years (we’re using simple moving averages; you can read more about the distinction between simple and exponential moving averages at this link).

We’ll compare that performance to simply buying the SPY five years ago.

The Performance of Buy-and-Hold

If you bought the SPY on October 8, 2020, and held it until today, an initial investment of $10,000 would be worth $21,012, a return of 110.8%, or 16.00% annually (assuming you reinvest dividends).

You’ve doubled your money in five years, which is great and exceeds the long-term average returns of large-cap stocks.

The Performance of Market Timing with the Golden and Death Crosses

Right off the bat, we’re faced with a conundrum: Should we invest in the SPY? If we’re using golden crosses as our entry triggers, what do we do when our first trigger is a death cross (sell) in March of 2022, more than a year after our window begins?

That’s a very real concern, and one we’ll discuss later, but for now, we’ll track two performance numbers: One in which you buy on the first trading day of our period because the last event was a buy signal (50-day line over the 200-day line means the last signal we would have gotten is a golden cross), and a second where we do not buy until a subsequent crossover tells us to.

Here are the results of both of those scenarios (both assume dividend reinvestment as well):

As you can see, if you simply bought at the beginning of our exercise and then subsequently followed buy and sell signals (scenario 1), you would have generated solid returns, albeit not as strong as simply buying and holding.

If, on the other hand, you had exclusively used crossovers as your buy and sell signals, you would have significantly underperformed both buying and holding and buying and then using the golden cross/death cross signals.

In our exercise, scenario 1 would have netted you a 91% return over five years, no doubt a great return, despite underperforming simply buying and holding.

Scenario 2, however, returned a far more modest 46% over the same period, which is less than half the return of just buying the SPY and ignoring it for half a decade.

What can we, as investors, take away from this? For most investors, the old adage that “time in the market beats timing the market” is a good rule of thumb.

In fact, the biggest difference-maker in our exercise is the fact that scenario 2 would have seen you sitting on the sideline and waiting for an opportunity to buy into the market.

In other words, trying to use the strategy would have massively cut down (by more than two years) your “time in the market.”

It’s also worth noting that these results can vary by timeframe. We’ve run this analysis before and found that scenario 2, which was the big loser today, would have actually been the best-performing strategy if the five-year window had begun nine months earlier (January of 2020 through January of 2025).

But the caveat there is that you wouldn’t have spent two years waiting to invest (the first buy signal came only six months later in that iteration).

So, to put something of a bow on the discussion, active strategies can outperform passive strategies, and passive investing can beat active investing, but for either of them to work, you have to be invested.

So, pick a strategy that you’re comfortable with, and get started.

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*This post has been updated from a version previously published in January 2025.