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The Golden Cross

01/30/2012

Market technicians put a great deal of faith in the “Golden Cross,” which occurs when the 50-day-moving average of the market rises above the 200-day-moving average.  It is thought that momentum is then changing for the better.  Many technicians consider that cross to be a strong BUY signal.

We are getting close to that point.  It has happened 26 times since 1962.  Based on that experience, there is an 80% probability the market will rise 7% in the next six months.

I would normally be very bullish because of that, except for the European financial crisis.  As fit as the U.S. economy is getting, we could still have a “Jim Fix” moment, referring to the great runner who suffered from a heart attack.

Of course, we should be grateful it is not a “Death Cross,” when the 50-day-moving average falls below the 200-day-moving average.  That is almost always a SELL signal.

Gold is better than death, right ??

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