Golden Cross Goes “Dark”
Top flight technician Mary Ann Bartels (BofA/ML) comments on the one-year anniversary of the Golden Cross, and the “Dark Cross” — its evil twin — that is now upon us:
June 23, 2010 marked the 1-year anniversary of last June’s bullish Golden Cross of the 50-day moving average above the 200-day moving average. This Golden Cross signal preceded a 12-month return of 22.4% on the S&P 500. The average 12-month return for the 42 Golden Crosses that have occurred since 1928 is 9.6%. More importantly, the June 23, 2009 signal occurred during the NBER recession that began in December 2007 and Golden Crosses associated with recessions show a much stronger average 12-month return of 19.5%. The average 12-month return for the S&P 500 over the same period is 7.2%.[...]
The bearish counterpart of the Golden Cross is called a Dark Cross. This signal occurs when the 50-day moving average crosses below the 200-day moving average. For the S&P 500, Dark Crosses are not all that bearish. The 42 Dark Cross signals that have occurred since 1928 have generated an average 12-month return of 2.4% for the S&P 500 vs. the average S&P 12-month return of 7.2%.[...]
She concludes with this rather ominous observation:
The current trading range on the S&P 500, which began in 2000, has seen two of these more bearish signals – one in 2000 and the other in 2007.
~~~
BR here — I whipped up this chart of the NYSE using the 50 and 200 day moving averages
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June 29th, 2010 at 9:51 am
So it has been deflation all along…hmmm? The dollar is your friend here, unless you think the country is going out of business.
June 29th, 2010 at 11:33 am
SDS and TWM are money in the bank guys. I don’t want to come of all Steve Barry on you (as we all know he held onto that QID trade way too long), but I think we are headed back below 7,600 and this will be an opportunity to make money on the down leg and then when it shoots back up (for no good reason) like it did last time.
Did you guys see Hussman? How about Rosenberg? Aren’t they both extremely bearish as well?
June 29th, 2010 at 11:36 am
@Justin — please define “going out of business”
June 29th, 2010 at 11:53 am
@Cdale_dog
I would agree on the direction, but doubt that it will be in a single movement. Dunno how hard things will hit us over the summer, but I’m sure that Bernanke still has a few tricks up his sleeve (although I think Geithner is polishing his resume, and looking for banksters to hire him at this point).
I’m hoping for more like a nice 20% gain on my TZA shares, thinking that small stocks are going to be hit harder than most on any hint of a double-dip, and look to be immune from the intervention/manipulation that the financials are subject to.
June 29th, 2010 at 11:56 am
“Did you guys see Hussman?” “Extremely Bearish?”
Have you guys seen Hussman’s performance for Strategic Growth? See the below from his website:
Annualized Total Returns
as of 5/31/10
1 Year 2.38%
3 Year 1.00%
If my client return was as mediocre as Hussman I would expect to lose a lot, a whole lot, of clients. I don’t care if the only non-sensical cause for market advance in 2009 was that Ben Bernanke got out of the car and pushed. How can you justify a 2.38% return. The LQD was up over 15% and the SPX was up over 30%. OK, the professor knows all the reasons to be bearish, where was the May 2007 to May 2009 performance – he should have been up over 40% if he cold spell the word SHORT.
You frosty perma bears have got to worship at the feet of a new Dr. Doom, Hussman has a big problem called published performance and his performance stinks.
June 29th, 2010 at 12:01 pm
It seems unlikely that any big plunge will begin before the end of the quarter, unless the banksters are heavily shorting the markets, which does not seem to be the case at this point … next week may be an entirely different story.
June 29th, 2010 at 12:01 pm
It sure looks like we are headed down. One idea when you consider how Mr. Market rips your heart out, is that we see a long, gradual downtrend. People will wait to pounce once the market gets in the 800′s or lower, remembering last year’s rally. Once we get below 800 and then maybe under 700 people start buying big. This is because they don’t want to miss out like they may have in the spring of 2009 when they didn’t buy. This time they buy, but only to find out that Mr. Market doesn’t shoot back up but stays down and drags perhaps just bouncing around there or maybe even lower. Then after a while, impatient people get disgusted and bail out. That’s when “revulsion” finally comes. (stealing a word from Hussman). We really didn’t get revulsion last time. It takes time to get revulsion and to get to the point where people hate stocks. Then it will be time to buy.
June 29th, 2010 at 12:04 pm
Correction: the SPX was up only 20% 5/31 to 5/31.
I get irritated when mutual fund wholesalers talk that bull about if you miss the best ten days of the year your return is almost zero, But… If Hussman misses the best ten months of a cycle how can his results be any good? And the ten best months that it appears he missed are the five best months up and the five best months short.
June 29th, 2010 at 12:08 pm
@Rescission
Perhaps without knowing it, you have almost perfectly articulated Bob Farrell’s Rule #8:
Bear markets have three stages — sharp down — reflexive rebound —a drawn-out fundamental downtrend.
We have seen Stage 1 and Stage 2…are we now in the fairly early stages of Stage 3?
June 29th, 2010 at 12:17 pm
I believe it’s called a “Death Cross”. I’ve never heard it called a “dark” cross. Golden Cross and Death Cross.
- http://www.tradingday.com/c/tatuto/movingaveragecrossovers.html
- http://investinganswers.com/education/principles-technical-analysis-death-cross-golden-cross-1402
June 29th, 2010 at 12:28 pm
@Cynic
Not to defend the Good Doctor, as there are certainly many funds in different categories (and even within the category that the Hussman Strategic Growth fund resides) that have outperformed him, but his fund performance numbers are in the upper part of that category for the 3-year period, according to Morningstar (5/31/2010):
HSGFX 0.97% (23rd in category) vs -4.04% for the category average
… the 1-year, was not so good … as one would expect from a predominantly bearish stance in the face of a rip-roaring rally …
HSGFX 2.75% (55th in category) vs 4.21% for the category average
In the YTD, 3 month, 1 month, 1 week intervals, his fund did a lot better, ranking within the top 10 in category for each of those intervals, and topping the category in the 3-month performance. In every one of those intervals the category average was negative, while the HSGFX return was positive in each of the same intervals.
Yes, there are certainly a LOT of funds of different types that have done better, and even funds of the same type that have done better, but if your objective was to not lose money, Dr Hussman appears to be doing OK.
His fund performance may well “stink”, but within the category that that particular fund resides, it stinks a whole lot less than its peers. There is a certain attraction to a significant segment of investors in avoiding negative returns.
June 29th, 2010 at 12:30 pm
@Cynic_FA:
You can’t fault Hussman, without being dishonest, for something he doesn’t intend to achieve and doesn’t promise. You are obviously in for the speculative short-term gain, which clearly can be seen from that you take the returns from riding on a huge bear market rally as a measure for a good or bad “performance”. Hussman’s explicitly says his funds are for investors who want to see long term performance together with capital preservation. I think, considering that the S&P500 has had a negative return over the last 10 years, Hussman has been doing quite well compared to this and he has achieved what he wanted to achieve. Nothing is perfect, though. If you don’t pursue the investment goals offered by Hussman, if you want riskier short-term investments instead, don’t chose his funds. It’s as simple as this.
Just compare the performance you have to offer to your clients with the performance of Hussman’s funds in a few years again, and not just after a temporary bear market rally. Then we will see whether you are a good market timer. Although you can claim a lot here, no one can check whether you are telling the truth anyway.
June 29th, 2010 at 12:33 pm
We are nearing a 15% correction from the highs. There is way too much “double dip” chatter for it to happen IMHO. High yield bonds and bond funds are holding up well, that is not indicative of market under collapse.
I think there will be a buying opportunity shortly (1-2 months), and we may get a secondary stimulus that boosts markets. Benny boy is in so deep, he will not want to fail. Congress can shoot down all the pork barrels they want, the FED will just catapult the money over the Castle walls.
June 29th, 2010 at 12:36 pm
Ten percent unemployment? Gusher in the Gulf? Housing rolling over? Asian carp invading Great Lakes? Afghan War in disarray? Europe teetering on collapse? Not to worry: CONSUMER CONFIDENCE JUST HIT A TWO-YEAR HIGH!
http://www.businessweek.com/news/2010-06-25/u-s-economy-consumer-confidence-hits-two-year-high.html
June 29th, 2010 at 12:38 pm
@Cynic_FA:
Well, have you shorted the market a lot recently? Because I don’t think so considering the bullishness you present here.
June 29th, 2010 at 12:40 pm
I wonder why she has neglected the “dark cross” that occurred in September 2004 in the aftermath of a mild, March-August correction. The market gained 50% over the next three years to the October 2007 top.
If you look back, every bull market since 1949 has had (1) a “golden cross” to confirm the start of the new bull market, (2) an initial “dark cross” during a corrective phase, followed by (3) a second “golden cross” confirming the second leg which, incidentally, has always exceeded the high of the first leg, and (4) a second “dark cross” confirming a new bear market.
The 2000 and 2007 crosses that she references were (4)’s and confirmed new bear markets. The September 2004 dark cross and the one that is occurring now are (2)’s, which for 60 years and 13 bull/bear cycles have marked the end of 10%-15% corrections.
If the pattern is to blow up this time, we should know shortly. None of the corrections associated with dark crosses have exceeded 16%, which means the S&P should hold above 1025. If precedent holds, the downside from the current 1045 is 2% while the upside is at least 20%.
June 29th, 2010 at 12:44 pm
@ Tomtom ~ Spot on. There are some caveats around, but I feel as if the FED will make every effort to keep the death march going. I will go short (hard, borrowed funds and all)if we hit new highs in the S&P within 2-3 years. I think we are near the bottom of this correction.
If not, I am in cash anyhow.
June 29th, 2010 at 12:49 pm
Cynic, I am actually in no way shape or form a perma-bear. I still have a good chunck of IRA money in long only mutual funds. that being said, I also have about 60% -70% in cash and I’m trying to be patient enough to buy when there is blood in the streets. I just don’t see any positive developments in the world or here at home that convince me fundamentals are good. Everyone gave Bush grief for the “jobless” recovery and that was when unemployment was around 5%. Now at 10% and growing, things are looking a lot worse. Remember, you may not have liked him, but he did preside over a nice run in the market from 2003 – 2007. Barry ain’t looking so hot in comparison…..
June 29th, 2010 at 12:56 pm
@Cynic In “interesting” times, some people seek a return OF capital instead of a return ON capital. As noted in the article, he’s fully hedged and if the world ends, his ratios will look fantastic; if the world doesn’t end, then it’s not fantastic.
June 29th, 2010 at 1:07 pm
@Kort:
What are a second leg down in the economy and a prolonged bear market in which the lows of March 2009 may be broken supposed to have to do with an end of the world? Think of Japan. Certainly not the end of the world what they have experienced over the last two decades. It sounds like that you only can imagine a binary world, in which there are only two possibles states: Good times or armageddon.
June 29th, 2010 at 1:18 pm
It doesn’t matter if it is a bear market or not. The ship is going down for now. As a trader that’s all that matters. Market psychology 101. There is no reason for a rally and every reason to tank considering earnings start flowing in a little over a week and the forward guidance at the very least will be cautious if not negative. Just one more reason for the panic that has yet to even start. Cash is king. Oh yeah, Gold is holding up just fine today too.
June 29th, 2010 at 1:33 pm
In addition to the Aug 2004 instance there was also a short lived “dark” cross in July 2006. If you sold that one (at around S&P 1266, you would have looked stupid when the S&P hit 1530 a year later, but brilliant in early 2009. My guess is this dark cross is more like 2004 or 2006 than 2000 or 2007. I will wait until earnings season hits to make a final decision.
June 29th, 2010 at 2:28 pm
Tom Tom and BR:
You are right that they left out other significant Dark (Black) Crosses which didnt go bear. But your analysis misses yet another Dark Cross in July 2006, which also didnt go bear. This was the 2nd Dark Cross after the Golden Cross of May 2003.
So in general folks, there isnt one obvious pattern here to draw conclusions from. The truth is Dark Crosses have happened before, sometimes as the start of a major bear market, most of the time as correction in a bull market.
I wish people would use technical analysis more carefully.
June 29th, 2010 at 3:23 pm
[...] a post titled Golden Cross Goes "Dark". Barry Ritholtz over at The Big Picture, points out the "Dark Cross" signal has [...]
June 29th, 2010 at 3:32 pm
We have posted a follow up showing tables for the Dark Cross:
http://shell-capital.com/blog/2010/06/golden-cross-goes-dark-what-is-dark-cross/
June 29th, 2010 at 3:49 pm
@constantnormal Says:
RE:Hussman
performance numbers are in the upper part of that category for the 3-year period, according to Morningstar (5/31/2010):
HSGFX 0.97% (23rd in category) vs -4.04% for the category average
The category is long/short mutual funds and more than half of those funds are required by prospectus to be 70% long and no more than 30% short. If Hussman is going to be the Great Poet for the Perma Bear Crowd he will need to make some money during the great bear moves.
@KORT If all the investor wants to do is not lose money , then maybe don’t buy risk investments. I saw a great opportunity in 2008 to buy 3-5 year CD’s at 4.5% to 5%. If you hate the US Dollar, you could beat Hussman with ISHG.
@ ROOTLESS – I confess to being a RETAIL FA. This gives me a limited toolbox which is 30% to 50% long 90% of the time. I get the opportunity to raise some extra cash and sometimes hedge a little with a structured note or a coverred call. I am not smart enough to time the market and go net short. And I never taught at the University of Michigan Business School with Hussman.
June 29th, 2010 at 4:47 pm
@Cynic_FA:
What does the performance of Hussman’s funds have to do with his recession warning, or his statistical analyses based probability calls where the stock market is headed, anyway? First one is a matter of correctly dealing with the given economic and market environment from an investment perspective, but whatever the first one is it doesn’t prove Hussman’s analysis regarding the economic or market environment right or wrong.
June 29th, 2010 at 9:15 pm
Quite CREEPY!…
But then the Astro-Financialists have been pointing this out for a few years….
LOL’s…..!
ROBERT MERRIMAN….! Or, folks might remember Arch Crawford from years past who used to appear regularly on CNBC in the old days…..(but he’s been “off his game)
June 29th, 2010 at 9:23 pm
Invictus…….
Interesting…and for some (((Woo Woo)))………..after your spooky post…….
COMING…SUMMER of 2010! I wondered if you were into “Channeling.” Hey…REALLY…there have been Predictions of some DARK STUFF out there…and WHO KNOWS? All is Crazy these Days…why not some (((Woo Woo))) ????
——
In astrology, a grand cross is said to occur when four planets are all separated from each other by square aspects (90 degrees apart). A grand cross can also be viewed as two oppositions (180 degrees apart) separated from each other by a square. In a grand cross, there is one planet in each astrological element (fire, earth, air and water) but all the planets are in signs of the same modality or quality.
Because all the aspects in a grand cross are considered difficult aspects, the grand cross is seen as a source of extreme tension whereby various aspects of the personality (represented by the planets) are working at cross purposes that serve to nullify each other. This pulls the native in many directions, ultimately leading to indecisiveness and an inability to produce concrete achievements. It is said to take extraordinary effort to overcome the conflicts in a grand cross.
An example of a grand cross would be with Saturn at 15° Virgo, Uranus at 15° Sagittarius, Neptune at 15° Gemini and Pluto at 15° Pisces. This is a mutable grand cross, which is said to be especially difficult with respect to the problem of maintaining focus in communication. A cardinal grand cross is said to cause a particular difficulty in accomplishing goals because the individual wants to accomplish everything at the same time: usually he/she ends up accomplishing very little if anything. One particular example of a cardinal grand cross will occur in summer 2010 when Pluto, Uranus and Jupiter and Saturn and Mars will be at 0-3° Capricorn, Aries and Libra, respectively, while inner planets transit at 0-3° Cancer. This is assumed by astrologers studying mundane astrology that it shall be a time with many great challenges and dramatic changes [1]. This aspect resembles another grand cross that occurred during the 1930s [2]. A fixed grand cross is said to lead to a person who is well organized but does not know where to direct their talents. Consequently, those with a fixed grand cross tend to be stuck in the same place.
People with many squares in their horoscope, however, if they work hard enough at overcoming the conflicts thus involved, are said to be able to achieve remarkable personal growth and self-fulfilment.
http://en.wikipedia.org/wiki/Grand_cross_%28astrology%29
June 29th, 2010 at 9:26 pm
BTW….SUMMER OF 2010 is mentioned here…otherwise I wouldn’t trash up this site with this kind of stuff.
June 30th, 2010 at 7:26 am
[...] A helpful explanation of all that Golden Cross/ Dark Cross talk you're hearing about. (TBP) [...]