The Stock Market's Death Cross
The 50 Day Moving Average crossed below the declining 200 Day Moving Average, which is not good, and is known as the Death Cross. It means a plunge could be coming. Since this crossing occurred last week, I have heard a number of pundits dismiss this event as overblown, and not something for investors to worry about.
Not sure what data they are looking at, but the charts we study clearly show that historically, stock prices are down substantially after this crossing occurs.
The following two charts track these Death Crosses from 1998, and in nearly every instance, stocks were down sharply after this crossing occurred. The red arrows identify when the Death Cross occurred, and the blue arrows show the decline that followed. Those blue arrows are pretty long in many cases. The smallest declines still took prices down 5 percent. Crashes occurred several times. The most recent Death Cross saw the 50 Day Moving Average drop under a declining 200 Day Moving Average, which is especially concerning.
The 50 and 200 Day Moving Averages have a lot to say about market trends. Recently, the 50 Day Moving Average stopped the early May rally, the early June rally, and now the 200 Day Moving Average has stopped the early July rally precisely, in the Industrials. In all instances, it was the moving average line that was the higher of the two that stopped the rallies.
The July rally started precisely on our most recent phi mate turn date. It was a nice run, but appears to be over.
We cover a host of indicators and patterns, and present charts for most major markets in our International and U.S. Market reports, available to subscribers at www.technicalindicatorindex.com.
"Bring the whole tithe into the
storehouse,
so that there may be food in My house,
and test Me now in this,"says the Lord of hosts,
"if I will not open for you the windows of heaven,
and pour out for you a blessing until it overflows,
then I will rebuke the devourer for you,
so that it may not destroy the fruits of the ground;
nor will your vine in the field cast its grapes,"
says the Lord of hosts."
Malachi 3:10, 11
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Author: Robert McHugh
Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.
Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.
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