Sunday, July 12, 2009

technical analysis golden cross -- search of the day

someone from 'Citicorp Global Information Network' arrived at Trend & Value via the following google search today:

technical analysis golden cross

I have gotten an enormous number (relative to total blog stats anyway) of hits from 'golden cross' related searches the last several weeks. regular blog readers may recall this post I wrote a couple months ago in which I postulated that a 'golden cross' could be used as a contrary indicator to screen stocks that were overextended.

today I just want to evaluate some of the prominent results from the google search above. this will give me a chance to link to some other sites (which I don't do nearly enough) and laugh at whatever idiocy comes up.

the first result is a 'textbook' definition at 'investopedia':

www.investopedia.com/terms/g/goldencross.asp

now I don't Know who wrote this glossary entry, but they seem to think that any cross of a shorter-term moving average above a longer-term one can be called a 'golden cross'. personally I have never heard the term applied to anything other than a 50/200 dma cross, so I am not sure where investopedia is coming from.

the next result is a real knee-slapper, coming, predictably, from bloomberg:

S&P 500 Near Golden Cross May Signal Gains: Technical Analysis

now the date of the article is June 9 2009, just two days before the top (so far at least) in the S&P 500. the bloomberg writer quotes two 'technical analysts' at Bank of America saying some completely obvious and completely meaningless stuff, like,

“If the S&P can hold above its 200-day moving average, the potential for a golden cross increases,” Mary Ann Bartels and Stephen Suttmeier, technical analysts at Bank of America Corp., wrote in a report to clients yesterday.

now this 200 day moving average thing is funny to me by itself. newsletter subscribers may remember what I wrote in mid-May:
These are just two among an essentially infinite number of scenarios. While the market's recent decline comes as absolutely no surprise to me, the fact that we topped right below the high at the beginning of the year and below the 200 day moving average strikes me as a little too convenient. It may be that I am trying to get too cute with my analysis, I still see at least some potential for a new high on the S&P, one not so obvious to the majority of participants. A break above the January high of 943.85 as well as the 200 dma would get all the vulgar 'technicians' excited that a new bull market has been 'confirmed'. This would be a great opportunity for the big, smart money to distribute massive amounts of stock to dumbass momentum traders and confounded short sellers.

The last time the S&P traded at 962 was Wednesday, November 5, 2008, the day after the US Election. The index opened at a high of 1001.84 that day and dropped as low as 949.86, before closing at 952.77. Regardless of my precise 962 figure, I think that day's range makes a very compelling target for the market. It would be the perfect area for what everybody is calling the Hope Rally to culminate.

that is a excerpt from the 05_14_2009 Trend & Value Letter. I have actually made that issue available to the public on the Old Reports page if you want read the whole thing. and I just realized that I had already uploaded the 06_09_2009 issue to the Old Reports page, so if you want to get an idea of what I was thinking at the time of that bloomberg piece you can check that out too.

now one wonders how much money Bank of America spends each year employing all these 'technical analysts'. they should instead consider subscribing to my newsletter, which only costs about a Dollar a day (per email address of course).

the third result from the search was from the It's Just Money blog a few years back:

July 13, 2006
Technical Analysis Review: The Golden Cross


this post seems to a man's honest attempt to judge the efficacy of a certain aspect of 'technical analysis'. not a horrible piece actually, but it seems to me that those attempting to 'prove' (or conversely disprove) techniques of chart analysis with statistics and historical back-testing are entirely missing the point. this is true not only with the analysis of securities transactions but pretty much all things 'human'. thank God I read Human Action, by Mises all those years ago. at the very least it explained to me the difference between Class Probability and Case Probability. the Mises 'Institute' has many faults, but I do appreciate how accessible they have made some of the classic works. this page at mises.org contains the chapter of Human Action dealing with probability. do yourself a favor and read it, if you have not already.

alright that's enough blogging for now. I got a newsletter to write. Monday morning's report will deal with the Oil market and specifically the 'Bakken Play' in Montana and North Dakota.