The Golden Cross in Free-Fall: Now Comes Disillusionment ~ The Risk Averse Alert

Monday, June 29, 2009

The Golden Cross in Free-Fall: Now Comes Disillusionment

Have you heard the news? Happy days are here again! According to CNBC it's time we "Bow Down To The 'Golden Cross' and Buy."

Over the past week you may have heard several folks mentioning the fact the S&P 500's 50-day moving average has crossed above the 200-day moving average. This, according to the Pumpsters at the subsidiary company of parent, Goebbels Electric, is a bullish sign. It is called, "The Golden Cross."


Indeed, Mary Ann Bartels, technical analyst for Bank of America Merrill Lynch, in a note to clients on Friday concluded that, "the equity market remains in a base-building process that should lead to higher returns." According to Bartels, "When associated with recessions, Golden Crosses show higher returns three, six and 12 months out of 7.4 percent, 8.3 percent, and 19.2 percent respectively."

Well, blow me down! Here I am all bearish and now this. Oh, but wait. The message gets even worse (or so it seems) for the fearful likes of risk averse me. Come to find out the Golden Cross has an impressive track record...
"Bartels found that during recessionary periods, the signal preceded positive 12-month returns a remarkable 93 percent of the time since 1932."

Ninety-three percent of the time ... oh my!

Are you quaking with uncertainty about my bearish position?

Well, stop! There is absolutely no good reason. Trust me.

You see, there's a key word in both of the statements I just quoted. It is the loud and clear scream of an analyst suffering a delusional fantasy. I will have more to say about this shortly.

Being the inquisitive kind I consulted mankind's best friend, Google. Searching for more about the Golden Cross (there's woefully little), I came across the following article posted at naked capitalism (a.k.a. wind bag central):

From Golden Cross to Golden Goose?

Here we find quoted, one Martin Roberge of Dundee Securities whose Golden Cross analysis is a bit more robust than that cited above from Ms. Bartels. Roberge takes a closer look at "downside risk" following a Golden Cross on the S&P 500. Apparently, "history also reveals that important pockets of market weakness remain."

Fine. Yet nevertheless, Mr. Roberge concludes, "a [Golden Cross] is a positive development for equities," and only adds the caveat that, "many pundits [fail] to mention that such a cross does not exclude possibility of a re-test of March lows."

So, outside this possible "re-test of March lows," we have but another Happy Days are Here Again analyst buying into the [admittedly conclusive] positive historical record of the Golden Cross.

But wait! What's that we see in Mr. Roberge's analysis? It's that word again! Like the number 666 it is the sure sign these days that, the investment analyst who believes this word somehow characterizes reality is, in fact, one stark, raving, lunatic...

The word? Recession.

Oh, is that so?

Recession when, in fact, "the rate of collapse of U.S. physical goods trade with the world exceeds what took place during the [Great Depression]?"

Recession when some see "ominous parallels to the mortgage/Wall Street finance Bubbles with today’s Government Finance Bubble?"

Well, it's really no secret. We've got a serious drug problem! Recession by no means comes close to adequately describing our present state. Truth is we remain in free-fall collapse. Right now, the stock market is seen as but in the "rearranging the deck chairs phase" of its ultimate sinking whose end might very well be just around the corner.

Those Mars rovers had better find life quickly, because Treasury probably is going to be needing a backstop sooner than most people presently imagine. And let's hope Martians, if we find them, are a magnanimous bunch, because word has it the Chinese are choking on Uncle Sam's "full faith and credit."

(It's probably the "faith" part causing China its greatest angst. That's the trouble, I guess, when your nation's financial well-being depends on a bunch of silly atheists.)

This talk of "recession" so much reminds me of mainstream consensus during Y2k's "New Era" of technological progress. Then, there were but the faintest whispers of the word "bubble." Far more prolific were those who believed prosperity would continue for as far as the eye could see.

Most memorable was Greg Hymowitz, interviewed by CNBC in early-March 2000 while he and his family were on a skiing vacation in Colorado. There he was wearing rose-colored glasses (I kid you not) ... pumping the last pound of hot air into the Pump and Dump. A most priceless display of delusional commentary on the soon-to-be-dead new era in technology Hymowitz gave that happy, Friday evening.

This sort of misplaced outlook is much like we are seeing right now with talk of recession, green chutes, less bad is good and bullish market prospects portended by the Golden Cross on the S&P 500 ... this while, at the same time, both the NYSE and NASDAQ McClellan Oscillators scream, "Mayday, Mayday!"

The pervasiveness of unmistakable fantasy, easily refuted, existing among the mainstream investment community causes this risk averse analyst to believe more strongly than ever that, the S.S. Monetarist Monkey has a date with destiny, and her name is Titanic...

(Note to Elliott Wavers: Robert Prechter is but another species of Monetarist Monkey)

Fast Money
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Paul Davis said...

Carl Swenlin in last week's Chart Update pointed out difference between Simple and Exponential moving averages...and "Golden Cross" has NOT occurred yet with EMA.

archer said...

Love your stuff, but don't ding naked capitalism based on that pension guy Leo. He's my least favorite, the other writers better and more to the point.

TC said...

I thought someone might call me out! I was in fact considering clarifying that remark. I meant it in a good way, because quite often I am a windbag too. It's that the posts at naked capitalism typically are so long and they are quite academic. Sometimes it's like reading university-level textbooks. Truly, I meant no offense.