Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Turkey Downs Russian Jet to Draw NATO and US Deeper into Syrian Quagmire - 28th Nov 15
Stock Market Quiet Week as Primary 5 Continues - 28th Nov 15
Black Friday, Weekend for Europe's Migrants - 28th Nov 15
HUI and Gold - Who's Leading Whom? - 28th Nov 15
Gold And Silver - No Ending Action, But End May Be Near - 28th Nov 15
Social and Cultural Distress Dividing The Nation - Fourth Turning - 28th Nov 15
Sheffield Houses Prices 2015, Best Estate Agents As Rated by Buyers and Sellers - 28th Nov 15
Stock Market Top Valuations, at a Critical Juncture - 27th Nov 15
The Top Shopping Opportunity on Black Friday - 27th Nov 15
Economics Is About Scarcity, Property, and Relationships - 27th Nov 15
UK Immigration Crisis Hits New Extreme of 336k Net Migration, up 32% on 2014 - 27th Nov 15
Vauxhall Zafira B Fire Danger Recall - What to Do Video - 26th Nov 15
Triggers In US Dollar Collapse - 26th Nov 15
Apple Stock is a 10-Year Short - Bear Market Environment - 26th Nov 15
U.S. Federal Reserve Rate Hike - 26th Nov 15
George Osborne's War on Buy to Let Sector Trending Towards Doomsday - 26th Nov 15
Will Turkey Drag NATO into War With Russia in Syria? - 25th Nov 15
George Osborne’s Autumn Statement and Spending Review Full Text - 25th Nov 15
Will Fresh QE From ECB Boost Gold? - 25th Nov 15
Sheffield, Yorkshire and Humberside House Prices Forecast 2016-2018 - 25th Nov 15
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

A Closer look at the Stock Market, XAU Death Cross

Stock-Markets / Stock Markets 2010 Aug 06, 2010 - 06:37 AM GMT

By: Clif_Droke

Stock-Markets Best Financial Markets Analysis ArticleMarket technicians sometimes let their imaginations carry them away. Because of the dry, tedious nature of the business, they sometimes exaggerate the importance of a technical signal by drawing to attention to what would otherwise be a non-event.

Take for instance the simple moving average crossover. This rather pedestrian occurrence can be seen whenever the rolling price average of a stock or market index crosses above or below a moving average of longer duration. When the 50-day moving average for the S&P 500 Index crossed under the widely followed 200-day MA, market technicians the world over had a field day.

The crossover involving the 50-day/200-day MA last month was widely hailed as a “death cross” by technical analysts, who soon began publishing gloom-and-doom forecasts based on this simple event. Hundreds of blogs, newsletters and newspaper articles were dedicated to explaining to the investing public why a simple moving average crossover carried the seeds of destruction for the U.S. equities market. The “death cross” as it has been christened is supposed to be a sure-fire harbinger for a bear market and a signal to savvy investors to liquidate stock holdings.

Indeed, many traders have taken a bearish view of the stock market at the exact time the S&P 500 Index (SPX) technically confirmed an immediate-term bottom for us in early July by breaking out above its 15-day moving average. We keep hearing talk in the financial press about the “death cross,” which is supposed to spell doom for the stock market whenever it occurs. The truth of the matter is that the indicator only works sporadically.

Had we not already suffered through the May panic sell-off and if equity prices were higher than they are now, one might easily concede that the “death cross” should be construed as an exit signal for investors long the stock market. But as it stood entering the month of July when the “death cross” occurred, the market has just had a major short-term cycle bottom. The various put/call ratios and investor sentiment readings were also suggesting the market had real turnaround potential.

Along those lines, an observer made the following comments recently: “Clif, you were the original in comparing this summer’s crisis with 1998. Many thanks; that helped me see this (below) from 1998, as all lamented together the famous death cross of the 50-day / 200-day MA combo….I just went to 1998 and saw the same thing around the “buy!”

He adds, “Looks like the famous ‘death cross’ was a meaningless indicator in 1998, about the last we have worldwide summer contagion fears. What makes it even more meaningless today is that everyone talks about it.

This is a good observation. It’s true that too many people have been talking about the “death cross” for it to have any sort of validity, at least in the near term. Alan Abelson in a recent Barron’s column made reference to the possibility that the death cross may have become a contrarian indicator. He referenced a survey done by The Chart Store ( which looked at all the “death crosses” since 1930 and found that “somewhat more than half the time, the stocks were higher a month or two later.” From now on, whenever the 50-day MA crosses under the 200-day MA following a serious corrective decline and bottoming process in the stock market, perhaps it should be considered a contrarian reversal indicator instead of a “death cross.”

The only time the “death cross” has reliable forecasting ability in terms of predicting a bear market is when the 50-day moving average cross under the 200-day MA following a period of pronounced internal weakness. This weakness is reflected in the daily NYSE 52-week new highs-new lows, which represents the incremental demand for stocks. When new lows have been expanding consistently or when the rate of change (momentum) of the new high-new low differential is declining on a short-, intermediate-, and long-term basis, there is every reason to fear that a “death cross” could turn out to be legitimately forecasting a market crash or bear market. That wasn’t the case in July when the infamous “death cross” made its most recent appearance.

Another observation is that when a stock or market index has already taken a sizable hit and is coming off a prolonged bottoming process, there is reasons to suspect that a “death cross” will prove to be misleading. An example of this occurred in the XAU Gold Silver Index in September 2006. The 50-day moving average for the XAU crossed under the 200-day MA in late September that year, yet the gold stocks had already experienced a significant corrective decline and were coming out of a lengthy bottoming process as you can see in the XAU chart. Moreover, internal momentum for the gold mining stock group was quite strong at that time as measured by the rate of change in the number of stocks making net new highs. This had a strong forecasting validity for the gold price itself and told the astute investor that the “death cross” in the XAU was likely to be a “head fake”, which indeeds it proved to be.

Moving averages are a wonderful tool to use when trading in stocks and ETFs but their use must be tempered by a comprehensive market analysis. Exclusive reliance on a simple moving average like the 200-day MA, or making too much of a moving average crossover signal are both mistakes to be avoided. There is a time and a place for moving average crossover signals but only when the crossover is backed by other technical indications. Education is of paramount of importance in learning the right time and place for using moving averages. Let it suffice for now that when media pundits start hailing a simple market indicator as a harbinger of doom, the best policy is to assume that emotions have gotten the best of reason and to ignore the hype.

Moving Averages

Classical trend line methods can be useful but they aren’t particularly suited for a fast-moving, dynamic market environment. This is especially true where turning points occur rapidly in a market that is subject to cyclical crosscurrents as 2010 has been at times. That’s where moving averages come in handy.

With a good moving average system a trader can be reasonably assured of catching most of the important moves in an actively traded stock or ETF while eliminating many of the whipsaws that attend trading choppy markets. In the book “Stock Trading with Moving Averages” we discuss some market-tested methods that have proven successful across most major stock sectors and industry groups, and is especially geared toward the gold and silver mining stocks and ETFs. Here’s what one reader had to say about the book: “ were the one who supercharged my charting with your moving average book ‘Stock Trading with Moving Averages’ and your constant analysis of the double and triple moving average series.”

Moving averages offer another advantage over trend lines in that they can be tailored to closely fit the dominant short-term and interim market cycles. They’re also more compatible with a trading range-type market…if you use the right moving average system. These and other strategies and tactics are discussed in “Stock Trading with Moving Averages.” Click here to order:

Order your copy today and receive as an added bonus a copy of my latest booklet which discusses the best long-term moving averages to use with stock trading.

By Clif Droke

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit

Clif Droke Archive

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


08 Aug 10, 07:57
death cross

Clif, hindesite is wonderful is it not ?

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History