A Golden Cross Emerges At FTSE AIM 100 Index, Good Sign for an up-trend!

A Golden Cross has been spotted on the daily price chart of the FTSE AIM 100 Index, which typically is considered as a bullish technical indicator, that ensures strength in a long-term trend. Here we are going to discuss what it exactly stands for:

• What is a Golden Cross?

A Golden Cross is spotted when the stock or an index’s crucial short-term moving average of 50-day SMA crosses over the long-term crucial moving average of 200-day.

The converse of this situation is “Death Cross”, typically appearing when underlying’s 50-day moving average crosses below the long-term 200-day moving average.

In a nutshell, it can be said that these are rarely occurring trends and are designed to identify an up-trends bull cycle (when Golden Cross appears) and down-trends bear market (when Death Cross appears).

• Golden Cross Interpretation

As the golden crossover signal comprises of two moving averages, it rarely appears; for instance, a Price vs 200-day SMA crossover, which typically is perceived as a relatively strong indicator as the momentum builds over the long-time. The signal indicates a bull market when it is supported by high trading volumes. The long-term moving average is considered to be as a crucial support level for an index, if a golden cross appears.

• How is it relevant for FTSE AIM 100 index now?

FTSE AIM 100 Index's 50-day moving average of 4,746.18 on January 16, 2020, saw a crossover above 200-day moving average of 4,723.68 (according to the Thomson Reuters data). Also, the 14-day and 9-day Relative Strength Index are supporting the signal as both the RSIs are heading higher.

Previously, the trend was spotted in June 2019, but that was not accompanied by Relative Strength Index, as RSI was declining and was trending towards the oversold zone. However, this time the golden crossover is also accompanied by the RSI, which indicates that the index is carrying the potential to move up from the current level.

However, in November 2018, a death cross was spotted on the daily price chart of the FTSE AIM Index which was also accompanied by the Relative Strength Index, after the signal appeared the index slumped substantially from 5,261 as on November 06, 2018, and 4282.10 as on December 27, 2018. That was a decline of around 978 points or 19% in just a month-over period.

Also, the Bollinger Band® is supporting the prevailing crossover signal, as bands are squeezing, which suggests that volatility is falling to a lower level. However, as per John Bollinger’s statement, a phase of short volatility is often tracked by a phase of high volatilities. So, a narrowing Bollinger Band® can usually foretell a steep advance or decline in future.

After the appearance of the Golden Cross in the January 16, 2020 trading session, the index traded approximately 39 points or 0.74% higher at 5,011.05 (as on January 17, 2020, at 12:20 PM GMT), which is also the highest one-day surge in the index on a YTD basis and MTD basis.

Also, the primary trend in the FTSE AIM 100 Index is positive, as it traded well above its short-term and long-term moving averages of 5-day, 10-day, 20-day, 50-day, 100-day and 200-day simple moving averages. Also, the Moving Average Convergence Divergence is positive, with the difference between the 12-day exponential moving average (EMA) and 26-day EMA remaining positive, which is again a favourable trend in the index and strengthen the crossover as well.

Together with this, the FTSE AIM 100 index is trading above its strong resistance of 5,000.0 level, which had last appeared in June 2019.

Over the past three months period, particularly after the British Prime Minister Boris Johnson made the announcement for General Election in late October 2019, the index garnered significant gains as it was perceived that General Election outcome would fix Brexit deadlock. In the past three months, the index has surged approximately 12% and bagged approximately 5% gain in a month-over period.

The rally in domestically exposed mid-caps and small caps was largely supported by a stonking victory of PM Johnson in the December 12 general election, which was well on the expected lines. The outcome of the general election provided political stability in the UK and took no-deal Brexit off the table as well. The scenario strengthened the British Pound as well from further deterioration against the basket of major currencies, particularly against the US Dollars, which had a higher impact on the domestically exposed mid and small businesses of the UK.

However, lower negotiation period earmarked for the Brexit transition period is posing some risks at present, but Britain still has the headroom to ask for further extension of transition by July 01, 2020, if Brexit negotiators feel so.

FTSE AIM 100

Alternative Market Segment is sub-segment of the London Stock Exchange, which facilitates smaller, less developed, start-up and growth companies, for the public fund access. The index was launched on June 19, 1995.

FTSE AIM 100 Index is presently representing the portfolio of 100 large companies by market-cap listed on the AIM -segment of the LSE.