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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Smiling Bob who wrote (258044)	7/1/2010 4:27:59 PM
From: DebtBomb	Respond to of 306849

Market's Swoon Prompts Fears Of the Dreaded 'Death Cross' Share retweet EmailPrint..Topics:Stocks.On Thursday July 1, 2010, 2:50 pm EDT Investors may feel like looking to the heavens for help in this volatile stock market, but what they will see now shining ever-brighter is the dreaded Death Cross. The stock market constellation, which happens when the Standard & Poor's 500 (INDEX: .SPX) 50-day moving average crosses beneath the 200-day moving average (see chart below), has not yet made a complete appearance but is, by some estimates, just days away. That's a decidedly bearish sign for a market that already has surrendered 16 percent from its most recent high. "Because the market has moved down so violently, it's brought about the likelihood of the Death Cross occurring much more rapidly," says Abigail Doolittle, founder of Peak Theories Research in Albany, N.Y. "It now appears it could be only a day or two off if downward momentum continues." Thursday's market featured choppy trading, with the averages shedding more than 1 percent at one point before easing. While the Death Cross isn't always a bearish sign, a market falling at such an accelerated pace as the current one frequently signals a further drop ahead for stocks. That's because it reinforces the notion that stocks are decling much faster in the short term and indicative of swooning investor sentiment. It is the opposite of a Golden Cross, which is where the 50-day average crosses above the 200-day. The current clip of the market's downward trend has inspired some analysts to begin shaving their S&P projections: •Standard & Poor's cut its full-year outlook for the S&P 500 from 1270 to 1190 because of fears that "this correction may morph into a bear market." •Brown Brothers Harriman reduced its trading range from the 1050-1250 area to 950-1130, citing a belief that "not only have significant cracks in the index's trend been exposed, but internal weakness is growing." •Goldman Sachs strategist John Noyce recently told high-end investors that if the 1040 support level didn't hold on the S&P (it hasn't), the next support area would be 865. Much of the recent market chatter among pros, in fact, has switched from fundamentals, which appear at least stagnant if not sound, and toward technicals such as the moving averages and phenomena like the Death Cross. Should the formation take, it would take levels previously thought of as support for the market and turn them into resistance. Investors also had been focusing on the 1040 S&P level as a key support number before that gave way Wednesday, and are seeing that as another bearish symbol coinciding with the Death Cross. "People are focusing on fundamentals because the market has been so volatile and extreme," Doolittle says. "The technical levels have become that much more obvious." Doolittle says that if current patterns hold, and the S&P continues to make what she calls a "twin peaks" formation, the index could fall to the 425 range, an extremely pessimistic projection not widely held. But while the market now looks like a field day for bears, those who have been looking for a market move lower aren't taking anything for granted. "Volume has been light. That's why you have to be careful about taking (the Death Cross) as an absolute," said Kathy Boyle, president of Chapin Hill Advisors in New York and a market bear. "The market is always going to humble everybody." And even the presence of the Death Cross is no guarantee that the market will sell off dramatically. The formation historically has resulted in a 0.4 percent drop in the S&P the month after, but the market traditionally gains nearly 5 percent in the ensuing six months, according to a Wall Street Journal report Thursday. "One of the themes that efficient markets will tell you is these things work for a while then they will stop working," says Robert J. Shiller, an economist at Yale University and author of several books on market behavior including 2009's "Animal Spirits." "Some of these things may not be amenable to statistical analysis at least as regard to the whole market, because they refer to rare events," he adds. "These patterns that are strongly in the market and likely to be influential don't occur often enough for statistical analysis." While Shiller makes room for the validity of chart trends, he says economic problems that rival what the country saw during the Great Depression are the market's biggest worries. Indeed, the convergence of weak economic data and poor technical behavior among the major averages could provide a double-dose of trouble on Wall Street, where pros have been trying to justify a rally that at one point had hit about 80 percent off the March 2009 lows. As such, investors are being advised to change their positions. S&P is telling clients to cut US equity exposure and increase Treasury holdings; Doolittle is recommending a move to cash or to the sidelines altogether; Gluskin Sheff economist and strategist David Rosenberg believes safety to be the best bet. "Caveat emptor is all we can say as last year's whippy bear market rally in cyclical and beta securities undergo a correction that should come as little surprise to students of economic and financial history," said Rosenberg, who predicts the Death Cross to happen in the next two weeks. At the same time, the market's anemic volume during the summer and especially approaching the July 4 holiday indicate neither the bulls nor the bears are making major bets. "The bears are riding high, taking no prisoners," Boyle says. "But who knows?" finance.yahoo.com