We told you last week about the “black cross,” and the danger that this technical signal poses for stocks going forward. Recall that a black cross occurs when the 50-day moving average (blue line) falls below the 200-day moving average (red line) (see chart below). This usually bearish signal occurred last week, and most market observers -- myself included -- were expecting a turn for the worse in stocks.

Boy, were we wrong.

Rather than a turn for the worse, stocks made a scintillating move higher, with equities reclaiming that 50-day moving average. The upside in stocks immediately following the black cross shows that there is indeed wisdom in the herd.

You see, I am not the only one who talked about the black cross last week. In fact, the financial media was saturated with stories about this technical indicator, and I think the fact that so many “experts” felt so bearish can be read as a contrarian indicator. It certainly played out that way over the last several trading sessions.

Now, in keeping with the contrary wisdom of the herd, I think the pendulum from bear to bull really has swung too rapidly in the bull’s direction. Sure, we’ve had some good earnings news this week, and the rebound in stocks is nice to see. However, I think the recent move off of the July lows was a bit too spastic.

I actually think we could be in for another big move lower and, as such, I caution you to keep your powder dry and to hang onto a sizeable cash position. Remember that one week of heavy buying does not mean the bear is out of the woods. Until we see stocks move decisively above both the 50-day and 200-day moving averages, I am going to proceed with extreme caution.