Gold $10,000, and why ‘golden’ is worse than ‘death’ when it comes to crosses

September 24, 2014

New York (Sept 24)  With much of the big market-moving news taking a pause, investors and the financial media have gotten fixated on what’s going on within the imploding small-cap universe.

If the fear-mongering in this whole Russell 2000 RUT, -0.94% “death cross” hype is giving you the night terrors, just wait until the “golden cross” stumbles into town. The flowery descriptors couldn’t be more misleading, unless “death” is a good thing and “golden” is something to be feared.

When it comes to returns among the small caps, though, these are two signals worth ignoring, according to Michael Batnick, director of research at Ritholtz Wealth Management.

“I’ve heard technicians dismiss these indicators as bunk, so I wasn’t shocked to see that the death cross was not indicative of anything,” he said. “However, I was shocked, as I’m sure you are, that the death cross is more bullish for stocks than the golden cross.”

Examining the numbers back to 2000, Batnick found that returns a year after an alluring golden cross are 32% worse than the returns following super-scary-sounding death cross.

Funny thing, while Batnick and several other bloggers were out there throwing cold water on the death cross, stocks got pummeled on Tuesday, following the indicator’s emergence a day earlier. As with all these indicators, they’re bunk until they’re not.

BTIG Chief Strategist Dan Greenhaus cautions investors against reading too much into the continued puking of the small caps. He says this kind of underperformance is usually found during corrections but isn’t normally a leading indicator of such weakness.

“Of course, with nearly half the Russell down 20% from respective 52-week highs and 16% of the index down 40% or more, one can hardly blame clients for wondering whether things are worse than the S&P 500 is letting on,” he said.

Maybe the recent weakness has something more to do with the date. September 22, according to Art Cashin, has historically had “imminent market crash” written all over it.

Source: MarketWatch

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