50/200DMA Bullish Crosses

I've been hearing and reading a lot lately about Bullish Crosses of 50/200 Day Moving Averages (or, use any ones that you like). The idea is that money will come into a stock or index because that's so-o bullish when it occurs.

The people who employ such strategies probably are the ones who end up saying, "Technical analysis doesn't work!" LOL.

As with any technical indicator, or signal there from, moving averages don't have a clue what the stock has done, nor does it know what the chart looks like. Buying "just because" some moving average has crossed another moving average can result in a poor entry.

A few examples:

From its November, 2008, FSLR rallied 143% into May of this year. Coming off the 207.51 high, the stock looked to be forming a nice Bull Flag, and the 50/200 DMAs made a Bullish Cross on May 28. If we bought the May 29 open of 186.00, we wouldn't be very happy. The next session was a high, and FSLR closed Friday at 144.55 for a paper loss of 22.3%. UGH.

APWR had a Bullish Cross on May 29, just two days ahead of its recent high of 14.68, which was a gain of 389% off its March, 2009 low. The stock fell 55% to its recent low on July 8. UGH.

POT rallied 155% off its December, 2008 low. The Bullish Cross of the 50/200DMAs occurred two days after the high was put in. POT fell 27% from the Bullish Cross; 33% from its June high. UGH.

Here's an example in which buying the 50/200 DMA Bullish Cross worked out quite well. AAPL corrected into The Bullish Cross, which coincided with an exact low in the stock.

Summary: View 50/200DMA Bullish (and Bearish) Crosses in the context of what the chart is doing. There's nothing automatic about them as far as buy signals are concerned. In fact, they can occur near TOPS, as we've just seen!