re: Russell Death Cross: BS or valid indicator?

Well. I tried to read the referenced paper. I really did, but included in it are the following formula and comment.

Rpi,t- r f ,t = api+ ßpi MKTt + vpi j=iwjVALj,t+mpi j=iwjMOMj,t+ epi,t

"In this paper we intentionally keep everything as simple as possible"

I was certain at that point I was somewhere I shouldn't be.

It seems the conclusion might be something like a hybrid momentum/value portfolio outperforms one of either. I didn't understand exactly how the combined portfolio would be constructed, whether it would include a combination of the best value and momentum stocks, or include the stocks that had both value/momentum characteristics. The latter sounds like it would have to be companies that were growing earnings very fast, but continued to be trading at high value, which sounds like a very good idea. I'm pretty sure the former (combo of value and momentum stocks) is what he was talking about though.

I'm not sure how this paper relates to the 'death cross' other than the death cross being a 'confirmation' that momentum is disappearing from a stock or index as there is no value aspect to it.

As I see it, the death cross is a cutesy name to an obvious observation; that price increases (earnings increases or expectations) have slowed to the point of stagnating. I don't know whether I think that is supposedly historically accurate due to human nature, business cycles, or the reality that systems (businesses, groups of businesses, or by economies) by their complex nature cannot continue to change (grow) at high rates and will develop to a state in which the aspects of the system which created the change (growth) have created a system which at some point falls into a consolidation stage in which it must pare off non-dynamic aspects before change can continue.

I'm pretty sure what I tried to say will only make sense to me

Anyway, since valuations of stocks seems to be more arbitrary than fundamental (based on wide variations of P/Es over time and the lack of correlation between P/Es to actual future growth), attempts to quantify human behavior seems as important as actual financial performance and competitive advantage in predicting a particular company's future price.

I managed a bank portfolio for a short time right out of college. I quickly found that the very same news one month that sent bond prices up would send them down the next. The human interpretation of data (mood, feel) had more effect on prices than the data itself. This being assumed, technical analysis can be helpful, though not for the reasons technicians assert; that the stocks 'must' do certain things if recent behavior fits some pattern. Technical analysis may work at times because the market, people, behave in a predictable way....sometimes.

soooo, does the 50/200 moving average cross mean something? Sure, it means that price increases have stopped for some arbitrary period of time. There's no possible reason they must or should fall in the near future. The infinite economic, political, and natural factors that drive prices are always changing. I don't think those variables are reducible to a simple moving average indicator. Nothing is that simple (ha ha).