Rule #1 Finance Blog

With Investor Phil Town

InvestED Ep. 163 – Technical Indicators: The Death Cross & Moving Average

It may have taken us a few weeks to get there, but Danielle is persistently reminding me to discuss technical indicators.  This week tune in as we go over the moving average and what it means, next week we will cover 2 more indicators that may be useful.

In Episode 163 You’ll Learn:

Disclaimer: These indicators DON’T work for everyone. We are only discussing them as useful aspects of your investing knowledge, but as always, this podcast should be listened to for its entertainment value only, but not to influence your own personal investing choices.

  • Technical Indicators
    • Why are we talking about it?
      • Because a lot of people do use them to enter and exit the market, although most value investors including Buffett and Munger do not. It is good to know what other people are doing – which is why it’s useful.
      • Take this as general knowledge to add to your basic investment resources – it is something good to understand and be aware of.
      • Technical trading is buying a stock based on solely the stock – not any other factors.
      • Value investing takes the whole company (not just the stock) into account.
    • Investing is knowing with a high degree of probability that you will make a profit (i.e not day trading).
    • Studies – Common name for technical indicators.
      • There are over 100 different technical indicators and you can find them easily on most brokerage sites.  
  • 1 of 3 “Top” Technical Indicators
    • Moving Average – Average of price over time (ex. daily over a 30 day period of time).
      • It tells you the “psychology of the market”, how does everyone generally feel within the market during that period of time. If it moves down over time, it indicates that there may be more fear in the market as opposed to greed.  
      • If the 50 Day Moving Average crosses the 200 Day Moving Average (in a downward direction) is called the “Death Cross”.
        • Defined: a death cross is a crossover resulting from a security’s long-term moving average breaking above its short-term moving average or support level. It is named due to the shape created when charting the activity and its association with a downward market trend.
        • The opposite is called the “Golden Cross”.

Show Notes:

Full Episode 163 Transcript

Phil Town: Hey everybody, this is Phil Town.

Danielle Town: And this is Danielle Town.

Phil Town: We’re here for The Invested Podcast, and I did it right that time.

Danielle Town: You did so good.

Phil Town: Thank you very much.

Danielle Town: We’re back after Berkshire, dad. Oh, wait, I screwed it up this time. Okay, tell us what we do on the podcast, please. I’m so sorry.

Phil Town: This is a podcast where we are working through an education based on Warren Buffett and Charlie Monger’s teachings about how to do value investing on your own, which …

Danielle Town: [crosstalk 00:00:36]

Phil Town: I will say, as a disclosure, that Warren and Charlie both agree that if you’re not gonna learn this stuff, you shouldn’t do investing on your own.

Danielle Town: Yeah.

Phil Town: You should just put your money in SPY index and call it good.

Danielle Town: That’s why so many people say to us, “Oh, they actually don’t recommend that you invest on your own. They actually recommend that you go and buy an index fund and that’s a little bit of a confusion out there because that’s technically true. Yes, they do recommend that most people, if they’re not going to buy Berkshire Hathaway or learn how to invest on their own would then just buy an index fund because they don’t support people paying such huge fees to financial institutions, but-

Phil Town: Which is the mutual fund world, typically.

Danielle Town: Okay. The mutual fund world, I would say they probably think that about hedge funds too.

Phil Town: Yeah, hedge funds too.

Danielle Town: Depending on what the strategy [crosstalk 00:01:32] …

Phil Town: Depending on which hedge fund.

Danielle Town: Correct, but beyond that, I think, yeah, they’re like, do this stuff. As Charlie says, it’s so easy and so simple.

Phil Town: Here’s the thing. Realistically they don’t want people to take anything from them that would … any sort of education from Charlie or Warren that would cause them to lose money.

Danielle Town: Right.

Phil Town: That would be really discomforting to both of these guys. They’re very, very good people and Warren, I think, expressed really clearly, he would like his legacy to be that he’s a great teacher. Of course, he has spent the last 60 years teaching us how to invest properly, and if that was not what he was trying to do, then he could’ve said, “Just go buy the index” 60 years ago and shut up about investing.

Danielle Town: I mean, no kidding. He could’ve saved himself a lot of time and energy by just simply not speaking to people about this stuff, and instead he spoke constantly. He’s slowed down a little bit now but he spent so much time educating people. I thought actually you put it incredibly beautifully in the afterword to our book, “Invested,” where you said Warren’s ambition was to be remembered as a great teacher and that yours was too. I think you have also accomplished that, Dad.

Phil Town: Oh, honey. That’s a really sweet thing to say. Honestly, I’m really a long way from there. I think [crosstalk 00:03:09] …

Danielle Town: I don’t know.

Phil Town: I’ve taught a lot of people.

Danielle Town: [crosstalk 00:03:10] You’ve taught a lot of people and, by the way, your worst and hardest student, me.

Phil Town: My hardest but my best. My hardest but my best. I don’t know that any other of my students have written a New York Times bestseller, and …

Danielle Town: [crosstalk 00:03:31]

Phil Town: I certainly don’t think anybody’s put the kind of work into it that you have to really, really get it, you know? Like every question you’ve ever had that you had any uncertainty about, you’ve demanded it be amplified, and that’s why this podcast continues to be really successful and so many people are listening to it around the world, and people come to the workshop that we have once a month in Atlanta from all over the world. Typically there are 40 or 50 people from other countries there every month.

Danielle Town: That’s great.

Phil Town: Which is amazing, and it’s a real testimony to the power of Buffett and Munger’s teaching, that so many people want to learn it. At Berkshire, how many people from China do you think were there? I mean, it was …

Danielle Town: Oh my gosh.

Phil Town: … Huge.

Danielle Town: So, you guys, if you missed the last podcast, we were at Berkshire Hathaway’s annual shareholder meeting and we did a live podcast, which was our first one ever, from the Bookworm Bookstore with Laura Rittenhouse who’s a Buffett expert and we talked about it then. We were talking about the number of Chinese people who were at that meeting. Everyone was talking about it, because I would say just based on the questioners that got up, maybe half the questions were from people from China. Maybe more than half. I mean, after a couple, I was kind of like, “Oh, there’s a lot of Chinese people here,” and then after a few more, I was like, “Wait a second.”

Phil Town: Now, this isn’t to say that half the audience was Chinese, but certainly the people who were really up to get things answered that they wanted to get answered or, to be slightly cynical, to get their face in front of a video so that their friends in China could see that they actually were doing something important at the Berkshire meeting, maybe that was part of it. It would be if I was from China and trying to be a fund manager in China. I would want a piece of video of me at the Berkshire meeting. That would be killer.

Danielle Town: This one woman got up. Those of you who get my monthly newsletter, you’ll have read this in my newsletter that came out just a couple days ago. This one woman, I just thought it was so funny. She got up, and she works for a family office, so she does investing for a family, for some family who’s wealthy, and she got up and she said, “I work at a family office. Just really interested to know, do either of you have a family office?” They both just stared at her for a second. Everyone in the whole audience was like …

Phil Town: [crosstalk 00:06:02]

Danielle Town: “Why did you come here? Because if you don’t know the answer to that question, what are you doing here?”

Phil Town: What did Warren say? “I think we’d be the last guys.”

Danielle Town: Yeah, that’s what he said. He basically said …

Phil Town: To have a family office.

Danielle Town: … There would be no point to that.

Phil Town: Because a family office, for those of you that don’t know, is typically professionally managed money that belongs principally to one family, so somebody, pick a name, the Gates family or something, which has the patriarch who’s made a fortune doing Microsoft and is not necessarily a professional investor but has billions of dollars to be invested would hire the best professional fund manager he could. That manager would just manage the Gates’ fortune, and Gates probably has somebody like that.

Danielle Town: He probably does …

Phil Town: [crosstalk 00:06:59]

Danielle Town: That’ll often be more than one person. It’s often, really, genuinely an office of people, because they just have so much money [crosstalk 00:07:06] families.

Phil Town: Yeah.

Danielle Town: Rich people problems.

Phil Town: The idea there isn’t to be genius. The idea with family offices is the idea that is behind really the vast amount of money that’s being managed by professionals from, you know, JP Morgan and Morgan Stanley and other really good financial advisory firms, the vast majority of that money is really from wealthy people. Billions and billions of dollars of money that’s been made by the family in some sort of way over time and now the objective is to keep it moving not necessarily larger but to keep it up with inflation and don’t lose it, right?

Danielle Town: Yeah.

Phil Town: Most of the financial services industry is run on an extremely different paradigm for a whole different purpose than what you hear on TV, right?

Danielle Town: It’s such a good point. Yeah, it’s completely different than what I’m trying to do, that’s for sure. I don’t have a family office.

Phil Town: That’s right, because I’m not dead.

Danielle Town: You’re my family office.

Phil Town: I want you to know that I’m gonna do my very best to spend it all before I die.

Danielle Town: I know, I know, Mr. polo playing, horse owning … Don’t worry, dad.

Phil Town: That’s because [crosstalk 00:08:29] …

Danielle Town: You should spend every last cent. I want you to enjoy everything, but keep a little for when you’re wheelchair bound and, you know …

Phil Town: I will.

Danielle Town: [crosstalk 00:08:39] Nurse full time.

Phil Town: In truth, in truth, your uncle Steve really got me thinking about this, which is to create generational wealth that passes down. I think in a certain degree, you and your sister and Daniel and Hunter, these guys, you guys are all gonna be fine. You’ve got great educations. You’ve got a great start in life. You’re gonna do really well, and I’m really proud of you for that and I’m really happy we did it like that, where you felt like you had to make it on your own. It wasn’t gonna be handed over.

Danielle Town: Absolutely.

Phil Town: I’ll tell you, man, I think that that’s a huge difference from kids that are growing up with some money, is that if you think you’ve got it made just because dad and mom have money, you tend to grow up a little differently perhaps. You don’t drive yourself so hard, maybe.

Danielle Town: Yeah. I mean, I’ve never been in that position. I couldn’t say. I’m sure there’s many people who grow up very well in that situation.

Phil Town: Well, come on, you went to Wellesley. I mean, come on. That college has got to be full of people who are sitting on family money and they don’t know what they’re gonna do in their life if anything. Is that true or am I just being ridiculous?

Danielle Town: You’re being ridiculous.

Phil Town: Oh [crosstalk 00:09:52] …

Danielle Town: There’s, I’m sure, some very wealthy women at Wellesley, but it is by far the tiny minority.

Phil Town: You see what you just heard there was your father’s experience with the greater world from Bellevue Community College. Not to put down Bellevue Community College, but I failed out of Bellevue Community College, and I did make it through a year at College of Marin, another fine community college. So, when I hear Wellesley, and I’ve been to … You know …

Danielle Town: Yeah, I’m like, Wellesley doesn’t have this reputation so I don’t even know where this is coming from.

Phil Town: What do you …Wellesley has a reputation in my mind of really a bunch of really rich girls. That’s what I think of when I think of Wellesley, and when I went there, nothing dispelled that.

Danielle Town: Really?

Phil Town: It looked like a bunch of really rich girls running around there. Yeah.

Danielle Town: By the way, women, thank you very much.

Phil Town: Women, women [crosstalk 00:10:51] …

Danielle Town: Wellesley women who will.

Phil Town: I’m sure they’re women. They seem to be women, sort of. They look like girls to me, but I’m just saying [crosstalk 00:11:02] …

Danielle Town: Well, coming from a dad’s perspective, I can appreciate that. No, Wellesley is definitely not a trust fund kid kind of college. There are other ones that have real reputations like that, but [crosstalk 00:11:14] …

Phil Town: Funnily, I don’t remember hearing Wellesley among the colleges where the students are being accused of being snowflakes for having their feelings injured by words that other people say which are harmful or something. Wellesley women tend to be, I think, kind of some pretty hardcore chicks. I mean, they’re like, “We can do this.”

Danielle Town: I will take “hardcore chicks” over “a whole bunch of girls.” That sounds better. Now, listen, dad, [crosstalk 00:11:45] …

Phil Town: In the range of political incorrectness here that I’m doing.

Danielle Town: We have promised for about six weeks now, for about six months now, I don’t even know how long it’s been, to talk about technical indicators in the market. I promised it at the end of two podcasts ago and then we did our live podcast from Berkshire so of course we didn’t talk about it then, and I am determined to get this off my little notebook here that says, “What’s next? Technical indicators.”

Phil Town: Let’s talk about technical indicators. All right.

Danielle Town: We’re getting comments from people going, “Six weeks ago you started that thing.” Guys, we’re gonna do it, right dad?

Phil Town: We are. We are. We’re gonna do it right now and we’re gonna start by just having you … I don’t know if you’ve ever watched Mad Money with Jim Cramer?

Danielle Town: No, I don’t know what that is. Oh, Jim Cramer’s show. I know who Jim Cramer is.

Phil Town: Well, Jim is a great investor, and really, really smart. He runs a show on CNBC. I think they go at six at night or something like that, and he opines on and recommends all kinds of things and people ask him questions and he brings CEOs on the show. It’s quite entertaining, and I think Jim would admit …

Danielle Town: He talks about particular stocks, right? Particular companies.

Phil Town: Yeah. Oh yeah, absolutely, and I think Jim would admit it’s an entertainment driven show. He’s very over the top emotionally and does his hand waving …

Danielle Town: Yeah, I sort of remember this now. He has some sort of board of sounds and …

Phil Town: Right, he’s got a big soundboard [crosstalk 00:13:22] …

Danielle Town: That’s what I remember.

Phil Town: Buy, buy, buy. Buy, buy, buy, right?

Danielle Town: Yeah.

Phil Town: He’s got a machine gun.

Danielle Town: I have not watched that in a very long time. Okay, so [crosstalk 00:13:29] …

Phil Town: He’s terrifically entertaining, and if you want to be entertained, watch it. I like Jim a great deal. On his show, he has occasionally, talks occasionally about technical indicators and the skill of charting. These fall into the category of technical trading, which is different and entirely, categorically different than the kind of investing that we do. So, technical trading is a different world than fundamental investing.

Danielle Town: This is bringing it back to me now when you said something like the technical indicators are kind of like looking at the clouds and one person will see a bunny and the other person will see like a pot of gold at the end of the rainbow and both might be right? Something like that?

Phil Town: Well, neither thing … What’s that guy that makes the t-shirt that says … It’s a picture of a pipe that says, “This is not a pipe,” right? You’re seeing a bunny and it’s not a bunny, it’s a cloud. Right? It’s not a rainbow gold at the end of the … It’s just a cloud and we make up what it looks like, right? We make up what it looks like. Technical trading and charting is like that. It is making up what patterns look like, essentially, and the weird thing is, though, the reason Jim puts it on his show from time to time, and you will see technical traders come on to CNBC and opine about what direction a stock is gonna go or the market’s gonna go based on these technical signals which are absolutely akin to looking at the clouds and seeing bunnies and trains, okay?

Danielle Town: Okay.

Phil Town: So, you’re just making up some sort of a pattern that your brain starts to see.

Danielle Town: That’s why when you brought it up, I was like, “What the heck?” Because I thought we were doing the exact opposite of that.

Phil Town: Right. We are. We could care less in general about any of the things that look like bunnies or trains.

Danielle Town: Okay.

Phil Town: Warren says it back early in his career. He played with these things and found that they were not particularly useful to him.

Danielle Town: Oh really. Oh, that’s good to know.

Phil Town: He abandoned them.

Danielle Town: Okay.

Phil Town: Sure, I mean when you’re getting started, you’re looking for all kinds of ways of figuring it all out and there have been people who have done well with this stuff, so we’re gonna dive into this a little bit, but I want everybody to have the context and that is we’re just educating about a part of the market that’s done quite widely by quite a lot of people and has an impact, actually.

Danielle Town: So yeah, so tell me why we’re talking about it. If it has nothing to do, really, with longterm value investing, if Buffett doesn’t do it, why are we talking about it?

Phil Town: Right. Well, we’re talking about it because there are a great number of traders who use technical signals and use them to enter and exit positions, in particular entering and exiting the market. As a result …

Danielle Town: Meaning, sorry, meaning entering and exit market index funds?

Phil Town: Right.

Danielle Town: Okay.

Phil Town: Or getting out of everything because an index in the market is suddenly signaling red, look out below, and so they’ll start exiting a lot of positions, so an awful lot of people have added technical trading skills to their fundamental investing.

Danielle Town: All right.

Phil Town: They’re on Wall Street, these guys, making lots of money.

Danielle Town: From what you’ve just said, it sounds like it’s because other people are responding to these indicators and it’s good to know what other people are doing?

Phil Town: It is exactly that. I don’t know that you’d find anybody out there who would argue seriously that because the 50 day moving average crossed the 200 day moving average, the market’s gonna fall like a brick. It’s that that particular signal is commonly found with a change in the market direction, right? So, because it is, people look for it and then when they see it, they change market direction and because they do, the signal works, to a certain degree.

Danielle Town: Wow.

Phil Town: In other words, it’s self-fulfilling.

Danielle Town: Totally.

Phil Town: Do you see that?

Danielle Town: Yeah.

Phil Town: Yeah. So, it’s quite entertaining, actually, that when you recognize that these things don’t have any life of their own any more than a bunny cloud does, but they are actually … people are placing large bets on whether that cloud looks like a bunny or a train. They’re putting money down on it, and if you’re gonna be in there trying to go long, let’s say you’re gonna buy the market, you’re gonna buy your market index now because you do that every month, and so you’re buying it. You might find that you’re buying it from most of the people in the market who are selling because they’re exiting on technical signals.

 So, I think it might be useful to at least let you guys know that these things exist and what they mean.

Danielle Town: Okay, let’s take it as general knowledge. I like that.

Phil Town: General knowledge, and let’s come back one more time before we go into this, that we are fundamental investors, meaning that we believe that the stocks are simply a slice of a real company and we evaluate the business as a business, not as a stock, whereas technical trading is evaluating the stock pattern.

Danielle Town: Okay.

Phil Town: It’s very, very different. We’re looking at it as a business looking at value over time, consistency, predictability, value versus price, and technical traders are looking at it as a stock floating around in this world of ether as if it’s not connected to anything. In general, a technical trader could care less about the underlying company.

Danielle Town: As if there’s like no company behind it at all.

Phil Town: Exactly. It could be, and here we go, it could be bitcoin, which has no company behind it at all.

Danielle Town: Yeah.

Phil Town: You could technically trade bitcoin with probably about the same level of success as technically trading an index.

Danielle Town: Okay.

Phil Town: Yeah.

Danielle Town: Okay.

Phil Town: I assure you that the bitcoin trading market is starting to really grow. At this point it’s in its nascent stages and very illiquid, relatively speaking, and there’s a big spread between the bid and the ask, but it is going on the Chicago Mercantile Exchange and they are going to be trading bitcoin future, so it’s coming. That is … you’re just trading clouds. There is nothing behind that bitcoin at all. It’s quite exciting. I might get there, trade a little bit of that. That might be fun.

Danielle Town: A little risky biz portfolio action?

Phil Town: A little risky biz portfolio action, but I will never confuse going to the racetrack and putting my money on Silverado or going to Las Vegas and trying to see if I can roll those 7’s time after time, or trading bitcoin. I will never confuse any of those things with investing.

Danielle Town: Yeah.

Phil Town: None of them are investing.

Danielle Town: Yeah. Yeah.

Phil Town: Now, if I went to Las Vegas …

Danielle Town: I’m totally in agreement.

Phil Town: You with me?

Danielle Town: Yeah.

Phil Town: Now if I go to Las Vegas and Las Vegas would not throw me out of a casino if they caught me counting cards, then that’s investing. If I can go in and have the odds in my favor so that I know that over a long period of time, I’m going to be successful, that’s investing. Investing is knowing with a high degree of probability that you’re gonna be successful over the long period of time, and of course no casino is gonna give you those odds, so let me ask you this. If you go to Las Vegas and the casino knows in the long term it’s gonna be successful, are they gambling or are they investing?

Danielle Town: They’re investing.

Phil Town: They’re investing, and that’s why they have those great big buildings.

Danielle Town: That’s right, that’s why there are roller coasters on top of them.

Phil Town: Exactly.

Danielle Town: Now tell me …

Phil Town: [crosstalk 00:22:11]

Danielle Town: … About the technical indicators.

Phil Town: Okay, so there are literally … I mean, I could probably rattle off 40 or 50 of them and I’ll bet you on any typical brokerage site if you were to go over to, let’s say on … Well, over on Think or Swim, if you went over and looked at their charting program, you would find that there are things called studies, and that’s a common name for these kinds of technical indicators. So, if you said, “Okay, I’m gonna go in and say, ‘Well, what kind of studies do you have?'” At Think or Swim they’ve got those little tab that says, “Well, add study.” Check this out. I mean, this is just the list of kinds of technical indicators, so they have alpha studies, bearish only candlestick patterns, crossovers, cycle studies, daily studies, David Elliott studies, John Carter studies, LBR studies, license studies, lower studies.

 All of these are created by traders who have found something that replicates itself over time. Typically what they’ll do is back test it like crazy to see what combination of time period and pricing changes can result in them getting some degree of predictability about the future if that pattern reoccurs.

Danielle Town: Okay.

Phil Town: So there are literally well over a hundred studies on trade station. Easily over a hundred. Sorry, a hundred different technical indicators. So, I’m just gonna talk about three of them here and by no means should you go out and start to trade bitcoin or something based on these indicators without knowing that you’re risking your money. You’re absolutely risking money, and so, with that as a disclaimer, the three that I think are interesting for us as individual investors would be the moving average …

Danielle Town: Yes, I remember we talked about that one.

Phil Town: We talked about that. That’s the average of price over time, and let’s say the time period is daily and you set the moving average to be the average of the price over a 30 day period of time. So, what that signal would do is it would say, “Okay, fine, if you want to set it like that,” and you can set these right on the brokerage site. They’re all very easy to set up and if you want to look at how to set these three up, you can go back to my book, Rule Number One, and it tells you how to set them up, so get the book.

 You set up the moving average by just telling it what kind of period you want. What you want are daily periods, and then you set it for a 30 day period, so 30 daily periods. Now as soon as you do that and say “go,” it looks at whatever stock you’re gonna pick up here and put that indicator on. Let’s put it on the SPX or the S&P 500 index, then it is gonna immediately create a moving average line that moves through the price and through the price in history. That line adds a dot every day and it moves a dot from its calculation. It removes the number from 30 days earlier.

 So, you go back 30 days and drop a day and now you go 29 days forward and then add today and that’s 30 days, and now you take the average. Then it just plots that as a line. Does that make sense to you?

Danielle Town: Yeah, that makes total sense.

Phil Town: Okay, cool.

Danielle Town: So you get some sort of curved, I imagine, line, depending on how much it’s moving.

Phil Town: Right.

Danielle Town: What does that tell you?

Phil Town: The moving average, if I had to define it as what kind of thing it is, it’s often thought of as the psychology of the market.

Danielle Town: Oh, [inaudible 00:26:23] …

Phil Town: Looking at market optimism, market pessimism, or another way to think of it is market greed, market fear. Okay? Believe me, we’re out on thin ice just saying that.

Danielle Town: Yeah, totally.

Phil Town: Because these are clouds, okay? These are just clouds, but this is one way to look at it. It’s a pretty simple thing and as the price moves down through the moving average line, it’s an indication that there’s more fear than there is greed.

Danielle Town: You’re saying that it’s the psychology of the market because what you’re talking about is the S&P 500 market index. If it were a particular company, then you would be saying it’s kind of the psychology of that company, right?

Phil Town: Right, right.

Danielle Town: Okay.

Phil Town: I mean, these signals are used by day traders, so they’re set on one minute intervals.

Danielle Town: Jeez.

Phil Town: So they’re looking at fear and greed on an extremely narrow timeframe of one minute.

Danielle Town: God, and they’re all just reacting to each other.

Phil Town: Oh, absolutely.

Danielle Town: That’s so weird.

Phil Town: This little spinning ball getting smashed back and forth at very high speeds, and things change very quickly when you’re looking at one minute, right?

Danielle Town: Yeah.

Phil Town: So that essentially says that … You could set that indicator, for example, on a 10 period, one minute interval, and that means that every minute you add a new plot to the line and every minute you’re looking at the last 10 minutes of average price, so you’re really in with a lot of detail. You could also expand it out to 200 days [crosstalk 00:28:08] in which case it’s much slower and a much more arc-ier line, right? Much smoother line over that long period of time, so you add a new day, new information at the close of each day and subtract the information from 200 days earlier and then run the average and plot the point.

 You could see if you’re averaging your new day across 199 other days, today’s new day isn’t gonna change that line very much, right? So, the 200 day moves very slowly. The 50 day is much quicker but still a relatively slow line. So, when these guys are looking at this and going, “Well, the 50 day, which is moving faster, is starting to cross over the 200 day which is moving slower,” that’s actually called, I believe it’s called the death cross.

Danielle Town: Wait, what? Okay, hold on. The 200 day moving average crosses the 50 day moving average and [crosstalk 00:29:11] …

Phil Town: No, the other way around. The other way around. The 50 is moving faster, so it’s the one that’s gonna cross over.

Danielle Town: How can you tell which is crossing which? Aren’t they crossing each other?

Phil Town: Well, the 50 day is the one that’s … Imagine that you’ve got a car going nice and slowly down the road at five miles an hour. Then you’ve got one that’s going 20 miles an hour and the one that’s going 20 just keeps whipping in and out, in and out, in and out across the road.

Danielle Town: Oh, so it’s kind of the impression is that the …

Phil Town: The impression.

Danielle Town: The 50 day is the one doing the movement. I got it.

Phil Town: Right.

Danielle Town: Okay. This is so funny. The 50 day crosses the 200 day moving average and it’s called what?

Phil Town: Well, if it’s crossing it in a downward direction, right? So the 50 day … Look at my hand like this. 50 day is going like that. The arc is downward crossing through the 200 day.

Danielle Town: You’re making a downward arc with your hand.

Phil Town: Right, the downward-

Danielle Town: [crosstalk 00:30:15] Like pointing down to the end of the rainbow.

Phil Town: Exactly, like an airplane coming down through a cloud like that. Down through it, right?

Danielle Town: Yeah.

Phil Town: That is called the death cross.

Danielle Town: I just can’t. I can’t with these financial terms. It’s too much. It’s like I think these day traders just got to liven it up a little bit so they come up with these things.

Phil Town: I know, it’s fun.

Danielle Town: You never heard Buffett going, “So I named it the death cross.”

Phil Town: Or, “We exited all of our positions on the death cross,” right? Because he’s done the work and he’s found that it’s just better to leave it alone. For the most part, it’s just better to leave it alone. So, Buffett doesn’t move on these kinds of signals and he doesn’t even move on some fundamental stuff. He doesn’t even move. He said, “If the federal reserve chairman told us where interest rates were gonna be in a year, we wouldn’t change a thing,” whereas other people would be, “Ah, I’m gonna change everything.”

 So, it’s definitely an interesting sort of view of the world, that these things are that important, they would call it the death cross. When the 50 day moving average comes up, now it’s the plane going upward through the cloud, going to higher altitudes. That’s called the golden cross. The golden cross. Gonna make some money now.

Danielle Town: Going towards the angels.

Phil Town: Gonna make some money now, and the death cross, “Ah, we’re gonna get wiped out.” So, these are signals on the moving average. Now, I want to dive in to the deeper signals here, which are much more sophisticated and indicate things like contrarian positions in the market. Let’s do that next time.

Danielle Town: Okay, so those are the Mac D and the stochastic that you’ve mentioned to me?

Phil Town: Correct. Correct.

Danielle Town: Okay, we’ve been promising them forever. We’re gonna get to them, guys. I’m making it happen.

Phil Town: I promise.

Danielle Town: All right.

Phil Town: Until then, time to go play.

Danielle Town: Thanks everybody. Bye.

Phil Town: See you. Hey, thanks for listening to Invested. We hope you enjoyed this episode. Head over to InvestedPodcast.com for our show notes and a special offer on how the podcast listeners can attend my three day transformational investing workshop for free where we just teach the heck out of you for three straight days, we don’t sell anything and we get you a scholarship to come to it for free, so come on over there and take a look at that, and, by the way, as our lawyers want me to say, everything discussed on this podcast is either my opinion or Danielle’s opinion. My opinion is right, and it’s not to be taken as investing advice because I am not your investment advisor nor have I considered your personal situation as your fiduciary, so this podcast is just for your entertainment and education only, and I hope you enjoyed. So, until next time, time to go play.

 

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On the InvestED podcast, Phil and his daughter Danielle shine a light on the successful investing strategies that gurus like Warren Buffett have used for 80 years. Listen in for a great stock market education on basics, learn how to invest on your own, and follow along with real-time examples and investing tips from week to week.