Nikkei ‘Golden Cross’ Signals Rally Is Real: Technical Analysis

(Bloomberg) -- The Nikkei 225 Stock Average’s move toward a so-called “golden cross” event signals the rally in Japanese stocks may have further to go, said MU Investments Co. A golden cross, which some chartists see as a sign to buy, appears when a short-term moving average line rises over that of a longer-term average. The Nikkei 225’s 100-day moving average line is nearing the 200-day gauge as the measure rebounds from a 26-year low on March 10.

“A looming golden cross suggests we may be entering a long-term bull market,” said Hiroshi Morikawa, a senior strategist at Tokyo-based MU Investments, which oversees the equivalent of $13 billion. When the cross appears “I’ll likely be convinced a rally is sustainable and recommend being overweight in stocks.”The 100-day average fell below the 200-day line in September 2007 and formed a so-called dead cross, believed to signal the start of a long-term down trend. In the ensuing 18 months, the Nikkei plunged by more than half.