Sunday, June 28, 2009

Golden Cross and Other Green Shoots

Evidence should be weighed. And when it is trying to prove a point that is wrong, and the evidence is wrong or fabricated or cast in the wrong light, then you should give this evidence an extremely strong the contrarian side.

The Golden Cross....when the S&P 50 day moving average crosses above the 200 DMA, is promoted as guaranteed clear sign of higher stock prices. I did a pretty neat time chart for 1942 in which a single bottom bounce occurred, it was really cool, right after the Doolittle attack. That was a huge confidence booster for the US. It was extremely risky and costly, if you don't know about it, you should, seriously. Because not only was it important, bold, and a great indication of what the true American spirit can rise to when backed against the shows another important issue in trading.

Confidence. When you hear about a "con job" you know what that means....someone got taken by deception. But what it really means, is a "confidence job". Soemone was made to be confident, and then others took the money.

OK back to the golden cross. Sure, this "Dumb indicator" shows good results, however, the results can be very misleading unless taken in context. In 1942, 1953, and 1982 the Golden Cross showed great 1 year returns, around 40%. But these were also coming from extreme P/E bottoms around 7.

Out P/E right now is around 15 or 20. The next 3 quarters should clarify that quite a bit. Without those 3 exceptional bottoms, the Golden Cross is worthless, in other words, all the other instances averaged to zero gains.

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Insightful and Useful Comment!