Golden Cross

Saturday (yes, I know, get off the computer!) 23OCT2010 00:12GMT

Hot on the heels of the “Death Cross” comes the “Golden Cross”. If you don’t know what these are, Google is your friend.

The reporting of golden crosses in the Nasdaq and the S&P is pointing out that the last time we got a golden cross in the S&P500, June 2009, the market gained 22% since (in around 15 months). No arguing with that. But the implication hinted at, that there are solid gains now to come in the next 15 or so months, troubles me.

What was going on in the market in June 2009 is very different to what is going on now. June 2009 we were coming off a huge crash (although by June 2009 the S&P500 had already rallied 30-odd percent from its crash lows) and the Fed was opening the taps, big time. The US economy appeared to be all but awaiting the last rites (so the permabears would have had you think, anyway).

Fast forward to now, October 2010 and the S&P500, at around 1180, is up 75%+ from its crash lows. The Fed taps are still open and gushing, and word is new taps are about to be added (QE2); but I think a rally from here of 22% is going to take a lot longer than 15 months. The US economy, while hardly a bed of roses, has showed, and is continuing to show, signs of (albeit tepid) growth. In the short term (say, the next 3 months) I think sideways-to-up is in order, not straight up. So, don’t get carried away with this golden cross (in fact, ignore it), by all means stay away from the doom-and-gloomers, but look for more sideways.

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