Our recently launched Chart Scanner has become an incredibly popular and useful tool for clients as it gives a user the ability to quickly scan through hundreds of charts in order to find the most attractive (or unattractive) patterns. Included with the tool are a number of pre-defined screens that allow users to see stocks that hit 52-week highs or lows in the previous session, experienced “death” or “golden” crosses, as well as charts which we view as having bullish or bearish patterns. Each of these screens can be found using the drop-down box at the top of the page (as illustrated in the image below). To unlock our Chart Scanner tool, simply sign up for a two-week free trial to Bespoke Premium. You won’t be disappointed!
In a follow-up to yesterday’s post regarding Exxon Mobil’s (XOM) historical performance following Golden Crosses, today we wanted to highlight another example that showed up in our Chart Scanner. Yesterday, Vertex Pharmaceuticals (VRTX) had its fifth Golden Cross in the last ten years with the most recent occurring back in July 2014. A Golden Cross occurs when a stock’s upwardly sloping 50-day moving average (DMA) crosses above its 200-DMA, which also has to be rising. Conversely, a Death Cross occurs when a downwardly sloping 50-DMA crosses below the 200-DMA, which also has to be moving lower. Technicians consider Golden Cross formations to be a positive signal, while a Death Cross is considered to be negative.
Unlike XOM, which has historically seen modestly positive returns following these patterns, Golden Crosses for VRTX have been outright bearish. The table below lists the one week, one month, and three month returns for the stock following each prior Golden Cross. After just one week, VRTX had positive returns only half the time, yet still managed to average a gain of 2.48% (median: 0.29%). However, one month later in all four prior occurrences, the stock saw big declines, averaging a drop of 10.68% (median: -12.06%). The three-month return did not do much better, averaging a decline of 6.35% (median: -11.62%) with losses three out of four times. It just goes to show that even something that technicians consider to be a positive signal is not always a guarantee.