The Standard & Poor's 500 50-day moving average stands poised to cross beneath the 200-day moving average. To those in the financial industry, this is known as a "death cross", and it is a very powerful indicator that we could be entering a bearish period. So is this yet another sign that we are on the verge of a recession? Well, anyone who has spent much time trying to interpret financial charts will tell you how inexact that science can be. Financial markets can be wildly unpredictable, and there is always a tremendous amount of manipulation going on behind the scenes. However, when you add this impending death cross with all of the other signs that we could be entering a recession, there certainly seems to be reason for alarm. The truth is that financial markets across the globe are full of fear and panic right now. In fact, as noted in another article, the dominant force in world financial markets in 2010 is fear. When fear rules, markets become very volatile and they can fall very quickly. Anyone who has spent much time trying to squeeze profits out of world financial markets knows that they tend to fall much faster than they ever rise. So are we now approaching one of those times of panic when financial markets across the world fall at breathtaking speed?
Well, the truth is that nobody knows. Anyone who says that they can predict these things with 100 percent certainty is either a liar or they are unbelievably rich.
But certainly the mood in the financial markets is grim. If a death cross does happen on the S&P it is going to make things even more tense.
For those not familiar with investing terminology, Investopedia defines a "death cross" this way....
A crossover resulting from a security's long-term moving average breaking above its short-term moving average or support level.
In this case, the death cross would be happening on the S&P 500, which is a weighted index of the prices of 500 large-cap common stocks actively traded in the United States. The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market.
So how soon could we see a death cross on the S&P 500?
Well, some analysts believe that it could happen almost at any time....
"Because the market has moved down so violently, it's brought about the likelihood of the Death Cross occurring much more rapidly," Abigail Doolittle, the founder of Peak Theories Research, was recently quoted by CNBC as saying. "It now appears it could be only a day or two off if downward momentum continues."
But hopefully most of you that are reading this are not even in the stock market at this point anyway.
The truth is that the "rally" that we have witnessed in the financial markets has been nothing more than a "sucker's rally".
The fundamentals of the marketplace have not changed.
The U.S. housing market continues to teeter on the brink of disaster.
The sovereign debt crisis is worse now than it ever has been.
In fact, just about every economic indicator you could name is pointing to difficult times ahead.
So there was really no fundamental reason why we should have even seen such a rally.
But even with the recent rally, the stock market still has not been producing good returns.
So often you hear people giving advice that goes something like this....
"If you are going to get into the stock market just keep your money in there and ride out the hard times because in the long run things always go up".
But do they?
The truth is that some people have done well, but overall inflation-adjusted returns from stocks over the past ten years have been pretty close to zero.
So if the stock market is a game that you want to play, you had better really know what you are doing (or hire someone else who does), because it can be a very cruel game for amateurs.
What does seem certain is that with so much tension in world financial markets right now, we are likely to continue to see an extreme amount of volatility in the marketplace. In such an environment, even the slightest piece of good news or bad news can set off incredibly wild swings.
It is a very exciting time for those of us who follow the financial news, but for those seeking to actually squeeze some profits out of the marketplace, times such as these are not easy.
I cashed out a large 401k last year. The logic was simple.
The last ten years has resulted in a net zero return. I only had ten more years of investing life.
With all of our jobs farmed out to the cheap labor of the Pac Rim and Mexico what was going to drive our economy out of this slump? With debt levels at atrocious highs, doesn’t it make sense that the government will increase tax rates. What would my net return be then?
In the end it was a no brainer. Take the 10% penalty or face a very likely 30% greater loss via inflation and higher taxes with virtually nothing on the horizon to drive the market higher. In 2009, that 10% penalty began to look pretty cheap. And incidentally, the only concentration of wealth left in this country is the 13 trillion in retirement accounts. And don’t think the government isn’t eyeing that prize. Or that they can’t up the penalty rate with a simple law change.
Anyone that tells you to fear that 10% penalty is an idiot. Fear leaving your money in, losing it, and then watch as the government raises taxes and inflation reduces it some more. Food for thought to all of those drinking in that great investment advice that every fund manager happily sells.
I have been following that guy at http://www.forecastfortomorrow.com and he has been killing it. I love his stuff, and thinks there is something big coming later in the year. He is worth a look. When He called teh market crash in 2008 I was able to make some good money.
IT’S ABOUT SELLING NOT SAVING!
Great Article! But I do disagree with one point.
“So there was really no fundamental reason why we should have even seen such a rally”
In the last three years corporate America has fired tens of thousands of workers, and this colossal savings of labor cost has made their bottom line look fantastic on Wallstreet [for a while]
Now of course real growth capitalism is about selling products and services…It is NOT about saving labor cost! All those pink slips that corporate America gleefully handed out to their workers did not produce any long term profts, only selling MORE of their products and services could have done that!
And what about this ?
do you also know it and had been mouth shut ?
http://www.examiner.com/x-37026-Bible-Prophecy-Examiner~y2010m6d8-Did-North-Korea-sabbotage-the-Deepwater-Horizon-oil-platform-Live-video
Re: 401k’s – depending on your plans rules, you may not be allowed to cash them out unless you change/lose your job.
So, if you still have stable employment cashing out is not a good option – even if you are convinced that the impending stock market crash/higher taxes/inflation/government confiscation is going to kill your nest egg.
Something to consider: check your plan rules, you might be able to take a loan against your balance. For instance, my employer has a 1.5 times match for contributions (ie: I put in $1 and they put in $1.5 for a total of $2.5) and I’m allowed to take up to $50K in loans.
So, I can put in $50K, they match with $75K for a total of $125K. I can then take out the $50K – $5K of penalties and $7.5K of taxes leaving me with 50-5-7.5=$37.5K back in my pocket, while STILL having $75K in my retirement plan (in case the S somehow does not HTF).
Basically, I can buy a $75K retirement plan for $12.5K. That’s probably the best return you’re going to see for years…and since you can keep it in cash, the biggest risk there is government confiscation (google government R-bonds to see what they’re up to on that angle).
Of course, I am not a financial adviser and this is not investment advice…I just read the rules
-DaveP
PGH PA
Numerous trends forecasters predicted this upcoming crash back 6+ months ago. As the stimulus spending ends across the globe the cracks are showing (almost all countries around the world injected trillions of stimulus money into the system).
I agree with Something Wicked’s input about the 401K. About the only safe bet out there are commodities like gold which is the ‘fall back’ last ditch emergency currency. If the economy was really recovering I believe gold would be at $400 and not $1,200 / ounce.
The 1217 peak in the S&P was as far as currency traders were willing to let the S&P run, as it exceeded the 1212 Gann Square Corey Rosenbloom highlights in his article Quick Update On The SPX Gann And Andrews Pitchfork
The peak of 1,217 occurred on April 23, and then rested at 1212 on April 26, at which time the currency traders massively sold the world currencies against the US Dollar, which resulted in an unwinding of yen carry trades globally.
The S&P sell-off was preceded by a sell-off of the European shares, FEZ, and particularly the Spain shares, EWP, in early April as the European Sovereign debt crisis developed, and as the Asian shares, DNH, sold off with commodities, DBB, on credit tightening in China. The chart of VTI, VT, DNH, EWZ, FEZ and EWP shows the effect of all this debt deflation affecting the stock markets. Debt deflation is adverse to investing long any market. Debt deflation creates an investment demand for gold.
The S&P was affected significantly by a spectacular rise in the Yen, FXY, which currency traders took from 105.44 on April 26, 2010 to 112.86 on July 2, 2010. The action in the chart of the yen is simply breathtaking.
One has to ask: can or would the currency traders take the Yen higher? If the yen falls, does it necessarily follow that the S&P will rise? These are questions that I do have an answer to.
I am completely invested in gold coins, it was a buy and hold decision.
The death cross? That happened when George W Bush crossed the Mason Dixon Line from Texas to Washington, D.C.
Investing in stocks and figuring out 401K’s is fine but look at the real big picture. Why are we broke as a country in the first place.
When Bill Clinton left office didn’t we have a surplus that year? Then came belt buckle chimp ears with his levi’s tied in a knot. W Bush (with advice from Cheney) invaded Iraq. Cost to our country? Nearly a trillion. Then Afghanistan, the cost? About 500 billion. Didn’t a C-130 just fly away with 3 billion to Dubia last week? Money stolen.
Bush unraveled Wall Street turning it into a ponzi scheme by trashing all oversite, including Glass-Steagal, and looted the treasury of trillions (with the help of treasury sec Paulson) just as he was “getting out of Dodge”.
Don’t forget W Bush’s advice to stimulate the economy just after 9-11. He said “go out and buy a Hi def television”. Remember he sent us a check in the mail!! Then when I filled out my income taxes and expected a refund check, the stimulus money was deducted from my refund. Nice job W, you ruined our country.
Yes i believe right back into deeper reccession. Due to the fact that most of all the tarp monies went into bailout huge banksters. An then the monies pumped into huge banks then this monies factored. Called fractual reserve banking. What goes in 1 dollar they can lend out 10. An its all legal to do.
@Joe in JT
Factual errors: Glass-Steagall was repealed in ’99 – Bubba signed off on that one. And no, there was never a budget surplus when Bubba left office – accounting sleight-of-hand in keeping SS off the books as a liability, but including SS taxes collected as income.
Your most egregious error comes in blaming Bush for everything. While he is in part responsible for the current mess, you can certainly assign culpability to Johnson, Nixon, Carter, Reagan, Daddy Bush, Bubba, and Obamination – if you think they had any actual control over the economy, which they didn’t (following orders is such a chore…).
But if you feel more comfortable wearing blinders and drinking several gallons of kool-aid each day, that’s your right, Mr. Joe Six-Pack, though you probably shouldn’t waste time on blogs like this – you might miss an episode of American Idol, Dancing With The Stars, or an important sporting event.
An interesting article about the direction of the stock market.
Should we not be focusing on getting the economy in shape? Even after ten years of zero net returns, most average investors have not figured out that the stock market is not the place to get rich.
As a former investment banker, I will tell you that Wall Street regards the average investor as sheep to lead to the slaughter. The game is most certainly rigged against the average investor.
Better to focus on the fact that the country is slipping further and further into debt, economic stagnation, and overall decline. The solution to our collective woes lies in taking control of the political process. That is the path to our salvation, not whether the stock market goes up or down.
To Grumpy–Clinton signed off on Glass-Steagall because it was part of a 2000-page budget (we all know these guys don’t read) and the repeal of Glass-Steagall was put in by Republican Phil Gramm, You know, the fool who said the recession was all in our heads.
I’ve seen a slew of graphs that show it started going downhill with Reagan the Republican hero. If you’re going to talk about blinders, take off yours.
“Something Wicked This Way Comes”
You are 100% right I did the same thing
Got out of the market took my 401k and
transfered to gold @ about 900.
I don’t have any faith in the stock market
the goverment, or the banks. Will
either buy farmland or leave the country.
Depenting what happens Next!
@sharonsj: apparently you didn’t read what I wrote. C- for effort, F for reading comprehension. Try again (quoting myself): “…you can certainly assign culpability to Johnson, Nixon, Carter, Reagan, Daddy Bush, Bubba, and Obamination…”.
Go ahead and play your insipid, meaningless left-right, tit-for-tat games with people like yourself that don’t know any better, don’t understand political realities, and are as ill-informed as you, but you should attempt to keep from embarrassing yourself in public by continuing to display your lack of insight and near-total ignorance of politics and finance.
scott_free
Bingo! I did same in spring ’08 and also put
all I could into gold/silver.
I feel same way. I never thought that I would actually entertain thoughts of leaving this country someday….now it is not that far fetched.
There is another Technical indicator called a head and shoulders. When the market penetrates the neckline after the right shoulder – look out below. Another confirmation of this bearish trend is the high volume sell off at the top of the head. Both of these patterns have happened and the high volume sell off is now known as the “flash crash”. The last time we saw this pattern was Dec 2007. I got out then. I am out now.