Friday, July 2, 2010

The truth about death crosses

Run for the hills! The S&P 500 is on track to have its death cross today!! Women and children first! Batten down the hatches! The British are coming! (sorry, UK friends, it is the July 4 weekend here).

Drama Queen.

Let's not get too wrapped up in the actual signal as it is not a very good short-term trigger. Why? Because it is a long-term indicator and everyone looks at it in context of the ensuing short-term action. A cross means the market has already fallen quite a bit. Even the action of the past two weeks leaves it short-term oversold and vulnerable to a real bounce - maybe even back to the averages.

Look at it as a long-term, put you on the right side of the trend indicator. Waiting for the reaction gives us a nice low-risk (vs. reward) selling opportunity. And the stop would be so close that if we are wrong we stop and reverse with little damage.

Of course, what if there is no bounce? OK, we just delayed the shorting. But what if it craters from here? Tough call. But if you ignored the technicals of three months ago, and again one month ago, well, you are late to the party.

2 comments:

Mikey said...

Mike, I don't think you realise, we British also celebrate 4th July - we got rid of you ....

靜宸靜宸 said...

人有兩眼一舌,是為了觀察倍於說話的緣故。............................................................