The 9/20 Cross

One of the strategies that I use to trade the market is based on the movement and location of the 9 EMA and the 20 MA on the daily and intra-day charts, which I refer to as the 9/20. It is pretty simple.

To determine the strength or weakness of any index or equity, I first look at how they are performing in relation to the 9/20.

For the index or equity to be showing strength, it must, at the least, be above the 20 MA. A further sign of strength comes when the index or equity is also above the 9 EMA. And the best sign of strength comes when the 9 EMA crosses up through the 20 MA and both are pointing up. When the 9 EMA crosses up through the 20 MA that, to me, is a buy signal and is what I call a mini golden cross.

Conversely, a sign of weakness comes when an index or equity is trading first below the 9 EMA and next below the 20 MA. If an index or equity stays below the 20 MA for more than a day or two, then that will pull the 9 EMA down through the the 20 MA in what I call a mini death cross. This, then, becomes a sell signal.

For an almost text book perfect example of the 9/20 in action, take a look at RIMM. If you bought RIMM based on the 9/20 mini golden cross, you would have picked up RIMM when it was trading in the $41-$42 range back on March 17th or 18th. You would have then held RIMM until it had a mini death cross on or about June 17th when it was trading in the $76-$80 range. You would have captured most of the move off the March low and the June high. Also take note of the fact that on 8/28/2009 another mini death cross has just occurred.

So that is the skinny on the 9/20 cross. As mentioned above, it can be used on intra-day charts in any time frame you choose and is especially good in spotting weakness in the daily time frame.

Added chart 8/5/10

Chart courtesy of StockCharts.com