“Golden Cross” or Crash. Is Either In Store for the Market?

As usual, the market provides a variety of signals, allowing investors to hop onto a bandwagon, believing that know what's in store for the stock markets of the world.

Recently, the NASDAQ gave a bullish signal, known as the Golden Cross (when the 50 Day Moving Averages crossed
the 200 Day Moving Average to the upside) which is supposed to be a
bullish sign.  You can read more about that formation in several places.

On the other hand, there are those who compare today's market with that of the Depression era in which a large market decline was followed by a substantial rally – only to sink to new lows. I don't want to publicize this opinion, but one prognosticator is looking for the Dow Jones Industrial Average to move below 3,000.

We know they can't all be correct, but the bulls and bears can go merrily on their way, each with 'evidence' to support his/her dreams.  The message I take from this is that it's possible that one of these views will prevail, but because I have no idea which is more likely (ok, I have an opinion, but will not wager on it's coming true), so it just encourages me to trade with a neutral bias,  However, I plan to continue to own enough insurance so that if we do see a significant rally or debacle, I'll survive in good shape.  I have no plan to bet on a long shot and thus, will not load up on cheap, OTM options – hoping for a miracle.  I'll settle for being prepared to prevent such a miracle (or nightmare) from demolishing my account.

How will you position yourself?

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2 Responses to “Golden Cross” or Crash. Is Either In Store for the Market?

  1. Sigma Options 07/07/2009 at 8:49 AM #

    “The message I take from this is that it’s possible that one of these views will prevail, but because I have no idea which is more likely (ok, I have an opinion, but will not wager on it’s coming true), so it just encourages me to trade with a neutral bias”
    Great comment Mark, especially for those of us who rely on trading for our income. I also have an opinion. My opinion was right about a market route, but way way too early. Market neutrality as the base position ensured I still paid my bills while waiting for the Apocalypse.
    I’m not so sure of my opinion this time, and I could also be way too early again, or dead wrong. Meanwhile, delta neutrality is a nice businesslike income.
    Cheers
    Wayne

  2. Mark Wolfinger 07/07/2009 at 8:55 AM #

    Agree. It’s important to maintain an income stream, especially when trading for a living. IRA investors also want a steady increase in net worth as time passes.
    I know we can buy gobs of FOTM options, hoping for something major to happen. But that’s just too expensive – and the odds of success are pretty small. I cannot consider doing it.