Like their peers in the US, European stocks enjoyed quite a rally over the last two months of the year. In early December the STOXX 600 broke out above the resistance of the summer highs, and while momentum has slowed in the last couple of weeks, earlier this week the index experienced a golden cross where its 50-day moving average (DMA) moved above its 200-DMA as both were rising. Technicians consider these types of formations to be bullish in terms of longer-term returns, but are they?

The table below summarizes the performance of the STOXX 600 following prior golden crosses since the index's inception in 1987. Looking across the table, forward returns were generally better than average over the following one, three, and six months, but over the following week and year, forward returns were weaker than the average long-term returns for all one-week and one-year periods. So, contrary to conventional wisdom, golden crosses in the STOXX 600 have not necessarily been a precursor of better-than-average returns.

What's also notable about this week's golden cross is the fact that it occurred on a day when the STOXX 600 declined 0.9%,While four of the six prior golden crosses occurred on days when the STOXX 600 was down, the only one where it was down anywhere nearly as much as it was on January 3rd was back in May 1995.

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