The Death Cross: Another Sign That We Are On The Verge Of A Recession?

The Standard & Poor's 500 50-day moving average stands poised to cross beneath the 200-day moving average. To those in the financial industry, this is known as a "death cross", and it is a very powerful indicator that we could be entering a bearish period. So is this yet another sign that we are on the verge of a recession? Well, anyone who has spent much time trying to interpret financial charts will tell you how inexact that science can be. Financial markets can be wildly unpredictable, and there is always a tremendous amount of manipulation going on behind the scenes.

Photo: The Death Cross: Another Sign That We Are On The Verge Of A Recession?

The Death Cross: Another Sign That We Are On The Verge Of A Recession?

However, when you add this impending death cross with all of the other signs that we could be entering a recession, there certainly seems to be reason for alarm. The truth is that financial markets across the globe are full of fear and panic right now. In fact, as noted in another article, the dominant force in world financial markets in 2010 is fear. When fear rules, markets become very volatile and they can fall very quickly. Anyone who has spent much time trying to squeeze profits out of world financial markets knows that they tend to fall much faster than they ever rise. So are we now approaching one of those times of panic when financial markets across the world fall at breathtaking speed?

Well, the truth is that nobody knows. Anyone who says that they can predict these things with 100 percent certainty is either a liar or they are unbelievably rich.

But certainly the mood in the financial markets is grim. If a death cross does happen on the S&P it is going to make things even more tense.

For those not familiar with investing terminology, Investopedia defines a "death cross" this way....

A crossover resulting from a security's long-term moving average breaking above its short-term moving average or support level.

In this case, the death cross would be happening on the S&P 500, which is a weighted index of the prices of 500 large-cap common stocks actively traded in the United States. The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market.

So how soon could we see a death cross on the S&P 500?

Well, some analysts believe that it could happen almost at any time....

"Because the market has moved down so violently, it's brought about the likelihood of the Death Cross occurring much more rapidly," Abigail Doolittle, the founder of Peak Theories Research, was recently quoted by CNBC as saying. "It now appears it could be only a day or two off if downward momentum continues."

But hopefully most of you that are reading this are not even in the stock market at this point anyway.

The truth is that the "rally" that we have witnessed in the financial markets has been nothing more than a "sucker's rally".

The fundamentals of the marketplace have not changed.

The U.S. housing market continues to teeter on the brink of disaster.

The sovereign debt crisis is worse now than it ever has been.

In fact, just about every economic indicator you could name is pointing to difficult times ahead.

So there was really no fundamental reason why we should have even seen such a rally.

But even with the recent rally, the stock market still has not been producing good returns.

So often you hear people giving advice that goes something like this....

"If you are going to get into the stock market just keep your money in there and ride out the hard times because in the long run things always go up".

But do they?

The truth is that some people have done well, but overall inflation-adjusted returns from stocks over the past ten years have been pretty close to zero.

So if the stock market is a game that you want to play, you had better really know what you are doing (or hire someone else who does), because it can be a very cruel game for amateurs.

What does seem certain is that with so much tension in world financial markets right now, we are likely to continue to see an extreme amount of volatility in the marketplace. In such an environment, even the slightest piece of good news or bad news can set off incredibly wild swings.

It is a very exciting time for those of us who follow the financial news, but for those seeking to actually squeeze some profits out of the marketplace, times such as these are not easy.

Michael Snyder
The Economic Collapse