'Death Cross’ Says This Bear Has Only Just Begun

We’ll be hearing a lot more about the “death cross” in the days ahead, mostly from business-channel pundits who know as much about stock charts as you and I do about particle physics. The death cross occurs when a trading vehicle’s 50-day moving average falls beneath its 200-day moving average. It usually signals a big selloff ahead.  If correct this time, the 4000-point plunge that has already occurred in the Dow Industrials and the 500-pointer in the S&P 500 are merely the start of a far more devastating bear market still to come. Don’t believe the Wall Street shills who say the death cross has not always been correct. In this case, it has appeared simultaneously not only on the charts of the Dow and the S&Ps, but also in AAPL, the most-owned institutional favorite of them all. Under the circumstances, odds of a false signal are remote.

$50 Million Homes!?

If so, we shouldn’t be too surprised when the carnage continues. The severity of a bear market will always be commensurate with the folly that has preceded it. In this case we have really overdone it. A telling example is the large number of homes currently listed for more than $50 million. Another is the number of huge companies whose shares sell for more than a hundred times earnings. Listen to the pundits and even some high-profile eggheads who should know better, and you could almost believe things are normal. In fact, we’ve strayed so far from Kansas that it will not be possible to return there until crazynomics has been crushingly rebuked.

Don’t think we’ll get off with just a stern warning, either. It will take an epic heap of real trouble to bring about the needed catharsis. Before the earthquake subsides we will have to re-learn yet again that we cannot borrow our way to prosperity. Everyone will understand by then that Fed quackery can only end badly, and that the free lunch they purported to offer us ultimately had an intolerably high cost. If you don’t subscribe but want a peek behind the headlines, click here for a free two-week trial to Rick’s Picks. It will give you instant access to all features and services, including a 24/7 chat room where great traders from around the world share ideas that can help you make money.