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A Golden Cross -- or a Crash?


Prevent both miracles and nightmares from destroying your portfolio.

As usual, the market provides a variety of signals, allowing investors to hop onto a bandwagon, believing they 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 average (DMA) crossed the 200-DMA to the upside -- which is supposed to be a bullish sign.

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 -- then a 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 their dreams. The message I take from this is that it's possible that one of these views will prevail, but I have no idea which is more likely (okay, I have an opinion, but won't wager on its 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 won't 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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No positions in stocks mentioned.

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