Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Sheffield "Mi Amigo" Memorial Fly Past , BBC Crew Setting Up Stage for Breakfast TV Endcliffe Park - 21st Feb 19
Stocks Closer to Medium-Term Resistance Level - 21st Feb 19
The Stock Market’s Momentum is Extremely Strong. What’s Next for Stocks - 21st Feb 19
QE Forever: The Fed's Dramatic About-face - 21st Feb 19
Gold Technical Perspective – Why So Bullish? - 21st Feb 19
Sheffield "Mi Amigo" Memorial Fly Past at 8.45am on 22nd Feb 2019 - 20th Feb 19
Here’s The Real Reason You Stress About Money - 20th Feb 19
Five Online Marketing Predictions that will Matter in 2019 - 20th Feb 19
Has Gold Price Reached Upside Resistance Near $1340-1360? - 20th Feb 19
So Many Things are Not Confirming Stock Market Rally - 20th Feb 19
Forex Trading Management: The Importance of Being Prepared - 19th Feb 19
Gold Stocks are Following This Historical Template - 19th Feb 19
Here’s Why The Left’s New Economic Policies Are Just Stupid - 19th Feb 19
Should We Declare Emergency for Gold? - 19th Feb 19
Why Stock Traders Must Stay Optimistically Cautious Going Forward - 19th Feb 19
The Corporate Debt Bubble Is Strikingly Similar to the Subprime Mortgage Bubble - 18th Feb 19
Stacking The Next QE On Top Of A $4 Trillion Fed Floor - 18th Feb 19
Get ready for the Stock Market Breakout Pattern Setup II - 18th Feb 19
It's Blue Skies For The Stock Market As Far As The Eye Can See - 18th Feb 19
Stock Market Correction is Due - 18th Feb 19
Iran's Death Spiral -- 40 Years And Counting - 17 Feb 19
Venezuela's Opposition Is Playing With Fire - 17 Feb 19
Fed Chairman Deceives; Precious Metals Mine Supply Threatened - 17 Feb 19
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

Why Stock Market Death Crosses Aren’t Bearish

InvestorEducation / Technical Analysis Apr 29, 2018 - 10:40 AM GMT

By: Troy_Bombardia

InvestorEducation

Here at Bull Markets I try to dispel conventional trading “wisdom” that’s widely accepted but is false. The media’s repetition of these statements misleads traders and investors.

I’ve recently heard some chatter about the “death cross” because the stock market has been falling a little. For those who aren’t aware, the “death cross” occurs when the 50 daily moving average falls below the 200 daily moving average. This is seen by mainstream financial media is a BIG bearish signal.


It isn’t.

Historically, the death cross has always happened during the initial 1/5 of a bear market. That makes sense. The death cross is a trend following indicator, which means that it will scream SELL during the initial 1/5 of a bear market.

However, the death cross has TOO MANY false signals. It is actually more often a medium-long term bullish signal than a bearish signal. Here are all the S&P 500’s death crosses that have occurred over the past 20 years. Extended the data to 1950 gives you the same conclusion: the death cross is not consistently bearish for the stock market. It isn’t a useful indicator.

2015-2016 death crosses

The death cross occurred AFTER the market had already crashed in this “significant correction”. Both times it occurred towards the bottom of the “significant correction”. It was a terrible medium-long term SELL signal. (S&P 500 soared throughout 2016-2017).

2011 death cross

The death cross occurred near the bottom of the “significant correction”. It was a terrible medium-long term SELL signal. In fact, this was the time to buy stocks.

2010 death cross

The death cross occurred near the exact bottom of the “significant correction”. It was a terrible medium-long term SELL signal. In fact, this was the time to buy stocks. The stock market soared over the next half year.

2007 death cross

The death cross occurred in the initial stages of the 2007-2009 bear market. Traders who used the “death cross” would have been able to avoid most of the bear market.

2006 death cross

The death cross occurred near the bottom of the “small correction”. It was a terrible medium-long term SELL signal. In fact, this was the time to buy stocks. The stock market soared over the next half year.

2004 death cross

The death cross occurred near the bottom of the “small correction”. It was a terrible medium-long term SELL signal. In fact, this was the time to buy stocks.

2000 death cross

The death cross occurred near the start of the 2000-2002 bear market. In this case it was a timely SELL signal.

1998 death cross

The death cross occurred AFTER the stock market had already crashed in this “significant correction”. It came out during the post-crash retest wave. It was a terrible medium-long term SELL signal. In fact, this was the time to buy stocks. The stock market soared throughout the rest of 1998-1999.

Conclusion

As you can see, the “death cross” is neither bullish nor bearish. It just is. It’s like stating a fact (the 50 daily moving average has crossed below the 200 daily moving average).

Death crosses can be used to get out of harms way during a bear market. But they are BULLISH signals during a bull market (when the signal comes out during a “significant correction” or “small correction). It doesn’t tell you anything about whether this is a bull or bear market.

Remember, technical analysis on its own doesn’t work that well in the stock market. You have to combine technical analysis with fundamental analysis.

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Troy Bombardia Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

6 Critical Money Making Rules