***Update*** For more in-depth research into the matter of the Golden Cross and a falling 200 day simple moving average, go here, after you finish reading this post, of course.
Karl Denninger, owner/operator of The Market Ticker penned a rather excellent piece, taking Dennis Kneale to task on his The Recession is Over proclamation. You may read Denninger’s missive here.
However, Denninger has erred when making this assertion:
“Finally, on your so-called “Golden Cross”; for it to be valid the 200MA and 50MA must be rising. The 200MA is falling; ergo, it is a false signal. Go look at some charts; this indicator is no better than a coin toss if the second condition, which you conveniently omitted, is absent. Better yet, talk to a market technician that knows his butt from a hole in the ground. I do a nightly technical video available on my forum and pointed this out several days ago.”
Faithful readers of iBC would have immediately noticed that this idea that a Golden Cross is not valid without both MAs rising, is incorrect. I would hate for Kneale to have any ammunition to use against Denninger, and therefore tried to leave Denninger a comment on his forum. Unfortunately my comment was not allowed. I was forced to either wait for an unspecified amount of time (due to being a new registrant), or make a donation, in order to be able to comment immediately.
While I do not have excellent control over my impulses, I do have tight control of my purse strings. I am also fond of instant gratification. Thus, I will post the research that disproves Mr. Denninger’s assertion, right here, and right now.
Testing the Rare Downtrending Golden Cross
I will let Michael Stokes sum up his own results: “It would seem that variation one, taking the crossover when it occurred regardless of the direction of the MAs, has been the most effective approach….If the upcoming cross occurs over a downtrending 200-day MA, it deserves the same level of significance as any other.”
Let’s Chase the Rabbit:
It is possible that Mr. Denninger, rather than commenting on the absolute return of the Golden Cross setup, is instead commenting on the predictive power of the cross.
We can attempt to tackle that issue.
Using all of the data provided by Tradestation for the SPX, below are the results of buying the downtrending Golden Cross, and selling the position once the 50 day moving average has crossed back underneath the 200 day moving average. Commissions and fees are not included.
Denninger’s statement, “This indicator is no better than a coin toss…” seems to be incorrect, as demonstrated by the 85% win rate. Furthermore, NOT taking this signal at all would have sacrificied gains of almost 100%. The only losing trade was very very small compared to the size of the winning trades.
To be fair and accurate, there should be some caveats inserted here.
- Specifically, how do we quantify a rising/falling 200 day moving average? If the average rises one day before the cross but has fallen for 20 days prior, does that count as a rising moving average? In calculating the results above, there was really only one instance where I was unsure whether the 200 day average was rising or falling. I did not include that trade, but it would have captured gains of 55.05%. In other words, including this questionable trade would have helped, not hurt the results.
- Another weakness of the research is the small sample size. However, the results are not at all ambiguous.
- Mr. Denninger does not state which index or indices he is referencing. Perhaps he is refering to an index other than the S&P500.
Summary:
Based on the data I have, Mr. Denninger is absolutely incorrect. For his sake, I hope Dennis Kneale does not read my blog.
Feel free to peruse my other articles on the Golden Cross, housed here: The Golden Cross.
Denninger is incorrect and Dennis Kneale is still an Asshat! Great post.
Read a couple reports on the Golden Cross yesterday stating the same thing. Seems crossovers with a downward sloping MA(200) actually outperformed crossovers with an upward sloping MA(200).
Good job Wood. Dennis Kneale is one of the most annoying personalities on CNBC, Denninger is not far behind, I no longer read or listen to either.
The bottom line is this recession will end (they always have), we have short term rates at 0% pumping huge amounts of liquidity into the system (the reason I’m still long and have a large proportion in financials and tech), leading economic indicators are pointing higher, and the “cubs” as j calls them on Fly’s blog are in good supply.
It’s not rocket science, but if it were easy, we would spend all of our time golfing, sport fishing, or playing with our kids 24/7.
So then the golden cross is always infallible? Woohoo!! Time to throw down!!!
SBB, of course you’re being sarcastic.
Hi Woodshedder,
I read an article yesterday on Minyanville, which showed an example (back in ’30s) when the Golden Cross did not work with the 200 SMA falling. Although the writer did acknowledge the indicator has a good predictability but wants the reader to be cautious on relying on a single indicator. Here’s the link to the article.
Sorry forgot the link
http://www.minyanville.com/articles/dow-UDN-uup-spx-market-SPY/index/a/23323
Plasma, thanks for the link.
Their research does provide one data point that shows a failed Golden Cross with falling 200 day SMA. I absolutely agree with the entire article.
I did not run the test on the Dow Jones, as Minyanville did, so I would expect my results to be a tad different from their results.
Still, Denninger’s statement does not hold water.
5* ^2
Just when I was thinking that perhaps I would start taking KD seriously as he wasn’t putting any validity in Hal Turner’s racist fear-mongering he goes and sticks both feet up to his knees down his throat.
Nice work Wood.
WOODSHEDDER IS INCORRECT.
“Summary:
Based on the data I have, Mr. Denninger is absolutely incorrect. For his sake, I hope Dennis Kneale does not read my blog.
Feel free to peruse my other articles on the Golden Cross, housed here: The Golden Cross.”
Peruse is a frequently misused word. Peruse means to “to examine with great detail and detail,” but it sounds like you used it in the “casual glance” sense, which is how most people use it.
Just kidding, Shed.
Damn you Danny! And I proofread this 20 times to ensure there were no errors!
well, we’re not all immune, even myself.
“Peruse is a frequently misused word. Peruse means to “to examine with great
detailscrutiny and detail,” but it sounds like you used it in the “casual glance” sense, which is how most people use it.”FWIW I agree with jake. On DJIA there are several (all my observations, didnt bother to test) where had you waited until the MA was + sloping the result was better.
Does better mean that if you don’t do it that way, that you don’t know your butt from a hole in the ground?
If I have time, I’ll look at the Dow.
For the record, I don’t see where Denninger specifies the index.
yes.
Belee me, I’m not siding with denninger over you shed. Just that conceptually to me it makes sense that if the 200 day is sloping up, the results would be better. I don;t think he did specify the index. Also, my take on his article, which I only read briefly, was him debunking kneales single data point on price action. He could have just as easily said “talk to me when 200d is sloping up” and not even mentioned the cross, then there would be no point of contention.
But who needs concepts and “would be’s,” just test for it using 10w/40w ma’s, if you don’t get dow daily info back to 1900.
But, in the end, slope isn’t deciding factor in “did the cross occur or not,” which, yes, it did.
M-W defines it as both:
pe·ruse: \p?-?rüz\
Function: transitive verb
Etymology: Middle English, to use up, deal with in sequence, from Latin per- thoroughly + Middle English usen to use
Date: 1532
1a: to examine or consider with attention and in detail
1b: to look over or through in a casual or cursory manner
2: read; especially: to read over in an attentive or leisurely manner
““Peruse” has long been a literary word, used by such famous authors as Shakespeare, Tennyson, and Thomas Hardy, and it tends to have a literary flavor even in our time. “Peruse” can suggest paying close attention to something, but it can also simply mean “to read.” The “read” sense, which is not especially new and was in fact included in Samuel Johnson’s 1755 dictionary, has drawn some criticism over the years for being too broad. Some commentators have recommended that “peruse” be reserved for reading with great care and attention to detail. But the fact remains that “peruse” is often used in situations where a simple “read” definition could be easily substituted. It may suggest either an attentive read or a quick scan.
It’s like saying that ‘up’ can mean both ‘up’ and ‘down’. Love it!
Thanks, DP, you saved me.
By the way, I don’t see the strikethroughs?
As for nested comments, I’m cooler than the other bloggers. Sometimes us older guys have a certain style and manner that is developed only over time.
The strikethroughs are now gone.
Instead everything in your sidebar (past the ‘Woodshedder’ comment section) is in italics!
The 200 day is a lagging indicator. It’s not lagging when you run your little back tests.
And you are a nagging indicator.
ha ha!
Wood,
You only have seven data points. You need to go beyond 1963. Once you do so, you will Denninger’s point.
Jake
Jake, how tight are our gravatars?
Jake, small sample size was noted: “Another weakness of the research is the small sample size.”
I have yet to see data beyond 1961 for the SPX. Keep in mind that part of the data I have cannot be used as it must be in place to calculate the 200 day moving avg. Yahoo data does not go beyond 1969 for the SPX. Also, I noted that Denninger makes no mention of what index he tested on, or how far back he tested. In fact I’ve seen nothing from him except for his retort that the indicator is no better than a coin toss.
If someone has access data going farther back, I’d be happy to test it.
Until I see some more data, my results are solid.
I just noticed you have biscuits as your background. haha. so cool. lovin’ the 101 on the Golden X
Lol, why is everything crossed out in your sidebar (aka. “strikethrough”)?
LOVE the nested comments. Would be nice if the rest of iBC adopted this as well…
good stuff wood
SBB, of course you’re being sarcastic.
😛
that Total Recal avatar is both totally disgusting and absolutely hilarious at the same time…hahaha…
Mr. Denninger is ignoring his inaccuracy. The irony is that he continues to call out Kneale for not responding to him. I know that Denninger is aware of this post as one of his followers asked in him forum when he would respond to me.
Crickets…
When I try to respond to the forum, I continue to get this message: “Too New of a User
The forum does not permit posting for new registered users until a period of time has passed in order to attempt to stop spam attacks.
You can lift this restriction either through the passage of time or via making a donation to the forum. See the FAQ for details on donations.
This is a fatal error; I’ve given up. ”
So now it has been almost 24 hours, and I’ve still no access to the forum, despite registering. I find the irony here to be rich, considering that Denninger is supposedly about transparency…
I love it !!! Confirmation of Dunning-Kruger Effect
http://fade-me.blogspot.com/2009/06/dunning-kruger-effect.html
Woodshedder,
I am a long time poster over on Karl’s website.
There is a fact you aren’t seeing. If we want to discuss facts. In all previous cases of a “golden cross” the market continued north from the point of the cross and stayed WELL above the 200DMA for upwards of 6 months minimum to over a year and rarely crossed back under it until the new bull was complete.
So a cross back below the 200DMA would be a unique pattern and therefore invalidate it.
Guess what we are about to do as of the close today?
yup… close back below the 200 after the so called golden cross.
here he is… denninger masqueraded. get a life dude.
How did that “golden cross” work out today?
EPIC FAIL.
Oh wait.. it’s not a unique pattern….
Check out May 1930 on the DOW. If we cross back below the 200DMA … it would be the ONLY other comparison.
GL being long.
CJ, good to see you over here.
The point is that Denninger made a blanket statement WHICH WAS COMPLETELY FALSE. You can throw all the red herrings you want. The facts are that Denninger said that a Golden Cross with a downtrending 200dsma is a “false signal.” It is not, I have proven it, and I will have another post up tonight which will put this whole issue to rest.
Anyway, Denninger, in point of fact, by his own words, “does not know his butt from a hole in the ground.”
The fact that he would be so blatantly wrong on an issue which is very easy to test makes me wonder how many other times he has asserted something as fact when it is in reality fiction.
And the fact that he has put himself on some kind of pedestal as the King of Blog Righteousness, to take on Dennis Kneale, when in fact he was completely wrong in his own assertions only points to an ego that will likely not permit him to ever admit his error.
“The fact that he would be so blatantly wrong on an issue which is very easy to test makes me wonder how many other times he has asserted something as fact when it is in reality fiction.”
First time on your website but must say finally someone calling out this guy. Hat tip to you as I suspect your helping many other people who might listen to dangerous advice without knowing their assholes from a whole in the ground as someone said. Good luck.
One last thing about that Knealey dude. Denninger took up the crusade against that guy for obvious reason, publicity. For starters DK never brought KD up but did bring Zerohedge up however KD seems to think this is his battle and is butting in, maybe bcs CNBC can help his cause you think? Isnt this stuff obvious to people or are they smoking crack in the morning? or whats going on?
Half of Denninger’s blog stories are lifted directly from Zero Hedge.
CJ, I would be glad though to discuss other aspects of the Golden Cross, such as the 2 odd instances you have highlighted.
I will wait though until my next post is finished as it may answer (or not) some questions.
Woodshedder, seems like you got an axe to grind over nothing.
Did you play the cross?
“Denninger is wrong”.
“While I do not have excellent control over my impulses, I do have tight control of my purse strings”.
“I was forced to either wait for an unspecified amount of time (due to being a new registrant), or make a donation, in order to be able to comment immediately”.
After reading your own crap, take a minute and reflect while I’ll throwup.
Steve, my initial concern was that Kneale would roast Denninger for posting something that was so easily proved incorrect.
I guess it is okay for Denninger to grind his axe, but no one else may?
Why should we accept fiction as fact, promoted by someone who claims honesty and transparency?
Please, when you puke, keep it off my blog.
Always need someone on the other side of the trade. Sold to you .
Does anyone get the sense that Denninger is the only (or thereabouts) posting on his forum? I got the feeling (at least to me its quasi obvious) that he uses several different aliases to post on his forums to make it seem like there is always people talking about something. However the discussion is a clear set-up as you can tell by the time difference between posts, the rhetoric of the posts and the people doing the postings are always the same.
“Does anyone get the sense that Denninger is the only (or thereabouts) posting on his forum?”
YES.
The following are very likely his aliases:
* TheOne / Lcruiser
* Pika-Steph
* Mtgspy
* Photoguy
* Hedgefundmanip
* Grody
* Bear
He does flavor them differently (liberal/nationalists, religionist, finance/mortgage/enterpreneur/unemployed, east / west coast) but boy every single one is a racist. What a criminal!!!!
Exactly. Here is some more (with just a slight cursory look, i.e. no intelligence involved)
“Bozonian
Mcneib
Gamma
iflyjetzz
yazooflesh”
And on and on and on… what a farse.
Thank you for your trade.
BOT 28th June QQQQ Aug 36 PUT @ $1.14 20% portfolio
SOLD 8th July QQQQ Aug 36 PUT @ $2.29 20% portfolio
Premiums on all other ITM call spread intrinsics that I’m shorting are now COVERED. And my /ES shorts as well 🙂
I will be watching your blog as part of the list of items within my contrarian-call lists.
You’re forgetting us fellows there. Norseman, GMAK, Asimov, Foxymoron, Sushihorn, (Nothing, now not there anymore), Fyteon, Lunatic_Fringe, 55Chevy, JRBaggs, Newbtrader, Downrange.
— Positional + daytrader, contributor to Tickerforum trader’s club. Kia ora, and greets from NZ! Yes, I will eat you, woodshitter (that’s what the site is calling you now) if you arrive in NZ.
You might want to retest this theory in bear markets vs. bull markets…
Props for going on the record though.
http://www.tickerforum.org/cgi-ticker/akcs-www?post=101038
Quoting Asimov who did that homework over the weekend:
“Here’s the summary of the data:
If you’d bought every golden cross and sold on the next death cross, you’d have seen $7,678.12 of price improvement.
If you’d bought every golden cross when the 200 and 50 were trending up then sold the next death cross, you’d have seen $7,606.48 of price improvement. (Yes, just $71.64 difference from buying them all.)
If you’d gone all wierdo, and bought every golden cross where the 200 was down and the 50 was up, selling on the next death cross, you’d have seen a total DROP of $8,819.24.
If you’d sold every death cross and closed it out on the next golden cross, you’d have seen $535.62 of price improvement.
If you’d sold every death cross when the 200 and 50 were trending down, closing it out on the next golden cross, you’d have seen $2,854.68 of price improvement.
If you did the wierdo thing again, and sold every death cross when the 200 was up and the 50 down then closing on the next golden cross you’d have seen $2,423.76 of price improvement.”
Thanks for the 2-bagger Q trade, (lying) woodshitter 🙂 (hey, how come I don’t see “banned” on your profile in TF?)
p.s. You’re not live2trade are you?
Junkyard, Asimov has conducted himself with dignity and is the only person I that I am aware of on Denninger’s entire Palace of Fascism that bothered to test this for himself. Therefore, I did not challenge his results, even though they are incorrect.
As I began to go through Asimov’s spreadsheet, I found a rather glaring error, within the first 20 or 30 fields. That was enough for me, and so I did not bother to check the entire sheet. Obviously you did not bother to check the sheet, but rather blindly trusted the results. Seems like a lot of Denninger’s zombies comport themselves in that fashion.
Also, Asimov’s results show an overall LOSS on trades taken with a falling 200dsma. Look, you don’t like my results, my methodology, then fine. However, this has been tested by many many different researchers, and none found that the falling 200dsma created an overall loss.
Here is a quote from the Merrill Lynch report on the Golden Cross:
“In the Merrill Lynch report prepared by Mary Ann Bartels, it continues to distinguish between golden crosses that happen with a downward long term moving average and those when the long term moving average is rising:
Of the 42 Golden Cross signals triggered since 1928, 20 have occurred with the 200-day moving average in a declining trend or lower than it was 30 trading sessions ago. These signals on average have generated 12-month returns of 13.3%.
The remaining 22 signals occurred when the 200-day moving average was rising or higher than it was 30 trading sessions ago. The returns for these signals were much lower and on average generated 12-month returns of 5.7%.”
Notice Merrill’s research is consistent with mine, and exactly opposite of Denninger’s statement in the quote at the beginning of this post.
So to be clear, there are some serious errors either with Asimov’s spreadsheet, data, or methodology. I’m not sure which one.
Goddamit it seems that my 20/50 crossover system which i touted last year and then was too fucking bear-biased to follow when it triggered actually works! After bankrupting my followers, no-one is renewing their gold memberships, income is running low, and the priceless dollars in my safe are no longer worth shit, so I need you guys to show me how to trade. Can I have a free month of PPT membership please?
Right currently it appears to be Drupal will be the preferred blogging platform available today. (from what We’ve read) Is actually that precisely what you’re using on the blog?
Very good post on the subject of substance misuse training among teens