Nostradamus didn't predict everything correctly. Neither do most stock market indicators. Some have been right most of the time but not all of the time.
That's not surprising. As Nobel laureate and physicist Niels Bohr is often credited as stating, "Prediction is very difficult, especially if it's about the future."
But there's one stock market indicator that's been 100% accurate since 1950. Here's what it's saying now.
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A golden cross with a twist
Many investors have probably heard of the "golden cross." It's a technical pattern that occurs when a short-term moving average crosses above a long-term moving average. The most popular golden cross is when the 50-day moving average rises above the 200-day moving average. When this happens, it's considered to be a bullish sign.
There's another kind of golden cross with a twist that I recently stumbled upon. Hypergrowth Investing editor Luke Lango identified an indicator he calls the "Super Golden Cross."
Like the standard golden cross, this indicator occurs when the 50-day moving average crosses above the 200-day moving average. However, the Super Golden Cross only applies when the 50-day moving average remains above the 200-day moving average for at least three days. Also, the shorter-term moving average must have spent at least nine months below the longer-term moving average.
Lango looked at the historical track record of this indicator. He found that going back to 1950, it has been 100% accurate at predicting the start of a new bull market for the S&P 500. The index went as high as 24%, on average, over the next 12 months after the Super Golden Cross flashed.
Now for the great news: A Super Golden Cross for the S&P 500 has occurred this year. And the index's 50-day moving average is still above the 200-day moving average. If history is any guide, this could signal that a new bull market is ready to roar.
A potential issue
Should investors load up on stocks because a market indicator with a perfect track record is flashing brightly? Before you do, it's important to be aware of a potential issue.
There's a possibility of overfitting with any stock market indicator. Overfitting is when an indicator is too aligned with a limited set of data. While it works great with that data, it might not have great predictive ability.
It's hard to know whether or not overfitting is an issue with the Super Golden Cross indicator. However, while the indicator has accurately predicted bull markets in the past, it hasn't predicted every bull market.
For example, the S&P 500 entered into a new bull market on Oct. 22, 1957, that went through Dec. 12, 1961. The Super Golden Cross didn't signal the new bull market, though, because the S&P's 50-day moving average wasn't below the 200-day moving average for at least nine months.
Lang's research found that the Super Golden Cross indicator correctly predicted eight S&P 500 bull markets since 1950. However, there have been a total of 10 bull markets that started after 1950, according to Yardeni Research.
Another 100% strategy
I hope that the Super Golden Cross truly signals a super golden age for investors. I'm not convinced that a new bull market is about to begin, though.
There is another strategy with a 100% track record of success that I am highly confident about. It's called investing for the long term.
If you bought an S&P 500 fund and held it for at least 20 years, you would have always made money. I'm no Nostradamus, but I predict that this strategy will continue working for a long time to come.
