Mad Money

Chartists Find Investing’s Holy Grail?


Cramer had to laugh – full-throated, from deep in the belly – when technical analysts all of sudden claimed we were at the beginning of a bull market. As if the Dow’s rocket-like trajectory to 9,000 from the early March lows of 6,500 and the S&P 500’s leap to 978 from 666 weren’t rally enough for them. But sure enough, a rising chorus among this group of Wall Streeters is claiming proof of a coming boom.

Off the Charts

The sign to which the chartists point is what’s called a “golden cross,” and its confirmation, they say, of stocks’ imminent move higher. Cramer, however, begged to differ.

“This is the kind of thinking,” the Mad Money host said, “that can only hurt you and make you a worse investor.”

So what is this golden cross? Technicians define it as a shorter-term average crossing a longer-term one, from below to above. It could be a 10-day moving average passing a 20-day, or the S&P 500’s 100-day overtaking its 200-day, which happened Friday, July 24 and is the reason for the recent cheerleading. In the end, the numbers don’t matter as much as the trend itself.

The problem, though, as Cramer pointed out, is that these golden crosses only happen after a big move. This much-touted investing tool is more of a rearview mirror than a crystal ball. So while confirmation of a four-month rally is great, it doesn’t do your portfolio any good. By then, the money’s already been made.

Cramer’s point on Tuesday was that investors need to anticipate moves, not lag them. That’s why he made calls on housing, the banks and the Dow before each of them rebounded. A golden cross will never help you do that.

“If you wait for confirmation that the move is real,” Cramer said, “then you're going to end up missing all the big dollars.”

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