Encore

I see I have some more bogs in the queue so I will publish them. If you want to see them, you should know where to go.  I wanted to send this one out to follow up on recent information.


I recently was caught by an interview with Robert Prechter (The Elliot Wave Theorist - works on a macro scale of stock trends) who forecast a DOW under a 1000 and a general depression. I paid attention because Prechter has been pretty damn good based on his technical analysis. One of his major indicators got him motivated, as well as his new book on surviving the coming crash.  Let me bring you with me on a look at the death cross, an negative technical indicator of historical analysis.  It seems to say something, but not always.


A few economic considerations:

1. The stock market has begun a "death cross."  First, what is it:


Ropert Prechter: 

...Known as the “death cross,” investors look for a very important technical indicator to point the future for the markets.  The “death cross” is actually made up of the 50 and 200 day moving average.  When the 200 day moving average crosses above the 50 day moving average, as it soon will, the market is said to go bearish.  When the 200 day moving average is below the 50 day moving average, the market will soon rise.... 

All that means is the long term thinking is not a good place to be because the short term trades are down and have "crossed" the trend lines. This makes some innate sense. See below a useful chart.  The NYSE chart shows a very certain death cross has been executed. 

2. 

3. Huge indicator - start to panic  Also, worries about many other factors. The cross goes to timing. 

Mr. Prechter foresees a major collapse. The market is aimed at 1,000 on the DOW, and, for fun, he includes depression and deflation. Of course, we have the old problem of what is meant by deflation.  I think, these days, the term is used to mean lowering of prices, not the original reduction of money in the circulation. In any event, for a dizzying collection of the things to come, from Prechter in 2003 see this page. I am happy to report, he sees the closing of the UN, the IMF, Fed, Fannie Mae, and Freddie Mac. 

However, he did see Mr. Bush losing big time in the 2004 election. He predictions may have been early as the government twisted things so we can avoid the consequences of our actions, which makes the consequences greater, of course.  I don't know why Prechter wants to venture away from his Elliot Waves.  It can only hurt him. 

Anyway, Prechter has to be watched. The NYT's criticism of him was that since 1978 he lost money one year, but his denial of the was never proved!  This is not much of a criticism. 

An interview on money going to bond funds shows he thinks bonds are the biggest bubbel in history. Says good cash in good bank is defensible; he is a fan of gold and silver. He has a book out on surviving the crash (which means he would promote the possibility of one). There is a free excerpt (warning) on what can happen to pension funds. This should be read

4.  More temperate:  studies show a drop in the market many times after a death cross or "dark" cross. There have been quite a few crosses in history, the key, to me is to see if the cross remains. 


Mark Hulbert 

MARK HULBERT

July 9, 2010, 12:01 a.m. EDT · Recommend (6) · Post:  

The kiss of the death cross

Commentary: Death cross over last two decades has not been that bad an omen

...Is the death cross indeed the kiss of death for the stock market? 

You be the judge.

I fed into my PC's statistical package the Dow's daily values back to the late 1800s, when it was created. It turns out that, over the intervening 114 years, there have been 85 death crosses -- an average of one every 16 months or so.

I then measured the Dow's average gain following these death crosses over the subsequent month, quarter, six months, and year. The data appear in the table below.

Dow's average gain over subsequent...	Following a "death cross"	114-year average
Month	-0.6%	+0.5%
Quarter	0%	+1.6%
Six Months	+1.8%	+3.2%
Year	+2.4%	+6.4%

The market does tend to turn in below-average performances following death crosses; indeed, the differences in the table are significant at the 95% level that statisticians often use to determine if a pattern is genuine...

Blake LeBaron, a finance professor... says that what's happened since 1990 raises the distinct possibility that something has permanently changed in the financial markets that largely eliminated moving averages' potential as a market timing indicator...

... Prof. LeBaron speculates that moving averages might have been sabotaged by too many investors trying to follow them....

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

There is the possibility that the death cross is still an indicator though it is has been stepped on so much as it may not be used cleanly.


5.  Curiously, I did not stumble upon graphs of the death crosses since the 1920s.  The talk is that there is one before every major collapse. Assuming this is true, keep in mind it is not always true that a cross is followed by a collapse.  Logic is involved, here, so many people don't follow.  


In summary, holy crap, maybe!


If you a defective light fixture that sometimes works that does not mean it is not defective and will always work.  Every so often, it will flatten you or burn down your house. 


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Let me submit some video for you to consider.  Here are views from people in the trenches:


JIM ROGERS interview


PETER SCHIFF and RON PAUL interviews  -  (Notice, no teleprompter) This is like movie trailer with dramatic music and all. You don't want to see the movie.


DAVID WALKER on 60 Minutes.  Walker is head of GAO. We are toast.  By 2040 we will pay interest and some benefits.  Medicare problem is 5 times greater than Social Security. (Now, we have Obamacare). Send this to everyone on your email list. 


See you, probably sooner than later.  The Obama AG's office has issued a directive that voting fraud  cases should not be pursued this year, so vote early and often. The criminals will.