• 657 days Will The ECB Continue To Hike Rates?
  • 658 days Forbes: Aramco Remains Largest Company In The Middle East
  • 659 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,059 days Could Crypto Overtake Traditional Investment?
  • 1,064 days Americans Still Quitting Jobs At Record Pace
  • 1,066 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,069 days Is The Dollar Too Strong?
  • 1,069 days Big Tech Disappoints Investors on Earnings Calls
  • 1,070 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,072 days China Is Quietly Trying To Distance Itself From Russia
  • 1,072 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,076 days Crypto Investors Won Big In 2021
  • 1,076 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,077 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,079 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,080 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,083 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,084 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,084 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,086 days Are NFTs About To Take Over Gaming?
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

  1. Home
  2. Markets
  3. Other

Death Cross is Not a Bearish Signal for The Stock Market

"People who cannot recognize a palpable absurdity are very much in the way of civilization." ~ Agnes Repplier

One of the common themes we have spotted it that many of the readily available tools don't provide their users with any meaningful edge. If the indicator is easy to use and easy to master, that means a plethora of individuals will be relying on it to give them some edge over the masses. What they fail to understand is that they are the part of the mass, they are trying to outwit. A lot of chatter has sprung about lately regarding the death cross. First it was the Dow, and now there is talk about the U.S dollar. This indicator like the "Hindenburg Omen" is far from perfect and could lead to more harm than good if utilized consistently, other than the cool names they carry, they offer little in terms of value: they are both easy to master and understand and this, in essence, renders them useless.

For those not familiar with the term death cross, it is a technical indicator, and it occurs when an index or stock's 50-day moving average falls below its long-term moving average, which is usually the 200-day moving average. The talking heads would have you believe that the end of the world was nigh. As usual when this occurred this year, they came out of the woodwork screaming bloody murder. Like a broken clock, they appeared to be right for a moment of time, but then reality hit, the illusion vanished, and they ran back into the woodwork when the market reversed course. Take a look and determine what it represents to you, disaster or opportunity.

Daily Dow Chart

When we look at it, we do not see anything dangerous or anything to fear. Once fear takes over you are paralyzed and rather than acting in a way that produces rewards, the result is usually failure and loss. Now to be fair, if you are nimble, then one could make money shorting the markets, but you would have to be pretty agile; something that is easier said than done. Look how fast the market reversed course. Using the Dow as an example, if one had shorted the Dow based on the so-called "death cross pattern", the outcome would have in most cases been far from perfect. You would have jumped in based on the signal, but what would have been your signal to jump out. If you did not move quickly or were waiting for a trigger to nullify the "death cross", you would have lost of the potential gains, and this is assuming that you managed to get in at the precise moment the signal was triggered. We believe that time would be better spent by making a list of stocks to buy, for the upside gains usually dwarf those made from shorting. History is on your side too. Over time markets trend upwards, and not downwards.

At the Tactical Investor, a death cross is a buying event, time to break out a bottle of champagne and celebrate, while the masses are busy chanting death to the markets. Many will not agree with our stance, but then again, if one is to be a contrarian, one must get used to this. When people agree with you or pat you on the back, caution is warranted and vice versa.

From a contrarian and mass psychology perspective, disaster is the code name for opportunity. Be happy when the masses panic, and panic when the masses are happy.

"A hallucination is a fact, not error; what is erroneous is a judgment based upon it." ~ Bertrand Russell

 

Back to homepage

Leave a comment

Leave a comment