Market Outlook: The Golden Cross Won't Happen for Months

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Includes: DIA, QQQ, SPY
by: Michael Kahn

There is a moving average crossover system that has worked pretty well over the years. Buy when the 50-day exponentially smoothed moving average crosses above the 200-day (a golden cross) and sell when the reverse happens (a black or death cross).

We got a death cross in the S&P 500 December 2007, thank you very much.



The question now is when will we see a golden cross? Of course, we cannot know that in advance but we can put a framework down to see where it might happen using non-crash conditions and non-we-just-bagged-Osama-and-solved-the-credit-crisis market melt-ups.

Using an aggressive plan for a rally over the next few months, that cross cannot happen for at least four months. And if the market putzes around for a while, that cross gets pushed out even farther into the future.

And if the market goes down to probe its old lows from November, push it out even farther - so far that we cannot even think about figuring out where. Why? Because the 50-day will get even farther below the 200-day, presenting even more ground to make up.

The point is that this system is not going to sound the "all clear" for quite some time. You may be able to pick some profits out of the market using short-term methods but long-term investors are going to have to wait.