Last Week’s Death Cross
I’m a bit late in writing this (apologies), but Thursday of last week the S&P 500 made a “Death Cross”.
This ominous-sounding event occurs when the 50-day moving average crosses under the 200-day, and to some technicians it signals the start of a long-term bearish bias.
I’d like to call readers’ attention to my previous analysis on the subject. Click through to get all of the nitty-gritty numbers, but the basic conclusion is that:
1. The market has clearly exhibited weakness following a Death Cross, and investors of the longer-term variety should take heed. However…
2. That weakness has not (in and of itself) justified shorting the market. The market has still on average gained following a Death Cross, and without other confirming signals, long-term investors are better off simply moving to cash.
Put more simply, the Death Cross isn’t a non-event, but it also isn’t as bearish an event as some would have you believe.
Side note: some interpretations require that the 50 and/or 200-day MA be falling to call a Death Cross. This additional rule increases the bearishness of the Death Cross, but also greatly reduces the number of days that qualify as a Death Cross.
. . . . .
Filed under: Trading Strategies, Trend-Following | 5 Comments