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OffbeatOpinion: Here’s what the Dow coming close to a ‘death cross’ really means for stocks

12:20  07 december  2018
12:20  07 december  2018 Source:   marketwatch.com

Almost half of S&P 500 stocks in a bear market

Almost half of S&P 500 stocks in a bear market The S&P 500 is not yet in a bear market, but nearly half of its components are. Hurt by worries about global growth, the S&P 500 on Monday fell as much as 1.89 percent before reversing course and ending the session with a 0.17 percent gain, trimming its loss so far in December to 4.44 percent. require(["medianetNativeAdOnArticle"], function (medianetNativeAdOnArticle) { medianetNativeAdOnArticle.getMedianetNativeAds(true); }); The S&P 500 index has been in a correction since October, defined by many investors as a drop of 10 percent or more from a high.

A rare “ death cross ” appeared Tuesday in the chart of the Dow Jones Industrial Average, suggesting the stock market may have already begun a new long-term downtrend. Although chart watchers have seen the bearish technical pattern coming for some time

The death - cross omen reappeared on Wall Street recently. And when that happened, I decided to go back and test my views by conducting more research Death - cross investors suffered far less turmoil and misery. And they endured much lower “drawdowns,” meaning portfolio losses from peak to trough.

Opinion: Here’s what the Dow coming close to a ‘death cross’ really means for stocks© Andrew Burton/Getty Images

The opinions in this article are the author's, as published by our content partner, and do not necessarily represent the views of MSN or Microsoft.

Think the “Death Cross” is the kiss of death for the stock market? Think again.

The Death Cross is a technical market pattern that occurs whenever the Dow Jones Industrial Average’s 50-day moving average drops below the 200-day moving average. Such an event was on the verge of being triggered at Thursday’s intra-day low.

Except over the past five decades, the Dow (DJIA) in the wake of Death Crosses has held up quite well on average. Accordingly, the stock market’s dramatic reversal on Thursday from its earlier low should not have come as a surprise.

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Here ’ s what it means . Annie Pei | @pei_annie. After the death cross , bitcoin rallied close to 0 by early November that year from around 0. Bitcoin has plunged about 38 percent year to date, but would still need to fall another 88 percent to erase all of the 2017 gains.

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Consider what I found upon feeding into my PC’s statistical package the daily values of the Dow back to 1970. Since then, a Death Cross has occurred 34 times, or once every 18 months or so. The last time one took place for the Dow was in January 2016. Though the market continued to drop for a couple of weeks after that Death Cross, it quickly reversed and was much higher in several months’ time.

To be sure, there have been times when the Death Cross has preceded major declines — notably, the one that occurred in December 2007, early in the 2007-2009 bear market. But there have been a number of other failures, including many that occurred in the middle of bull markets.

Overall, in fact, at the 95% confidence level that statisticians often use when determining if a pattern is genuine, there has been no significant difference since 1970 between the stock market’s average performance following Death Crosses and at all other times.

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The Dow ‘ death cross ’ is causing some bulls to turn tail on stocks . I call B. S . on the “ death cross ” After people started talking about the death cross this week, I looked at all the data for the Dow going back to But just because a bear market causes a death cross doesn’t mean a death cross causes

The Dow Jones Industrial Average crossed the 13,000 mark Tuesday for first time in nearly four years, helped by a backdrop The milestone came about two hours into the trading day. A: The Dow is an average of just 30 stocks selected by the editors of the index. It' s become a sort of shorthand for U. S

One of the best ways of illustrating this is by contrasting Death Crosses with their opposite: so-called Golden Crosses, which occur when the 50-day moving average rises above the 200-day. Golden Crosses are supposed to be as bullish as Death Crosses are bearish.

In fact, however, the stock market on average over the past 50 years has performed somewhat better following Death Crosses rather than Golden Crosses. (See chart, below.) That’s just the opposite of what market folklore would have us believe.

Opinion: Here’s what the Dow coming close to a ‘death cross’ really means for stocks

Why did technical analysts ever believe otherwise? My hunch is that it was because of U.S. market history prior to 1970, when Death Crosses more often than not did precede market declines. But, as has been reported many times before, moving average systems have in recent decades lost their previous predictive abilities. So it is hardly surprising that an indicator that combines the two moving averages should also be less predictive than it used to be.

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A death cross happens when the 50-day moving average of a stock or index crosses below the Historical precedence has shown that the death cross could mean that the market is about to go We Fools may not all hold the same opinions , but we all believe that considering a diverse range of

A death cross on the VIX occurs when the short-term moving average breaks above the long-term since this index typically moves in the opposite direction as the overall market. The world may not actually be coming to an end when one occurs, but the stock market may scare you into thinking it is.

The bottom line? While there undoubtedly are plenty of things for stock investors to worry about, a possible Death Cross is probably not one of them.

For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email [email protected].

Read: The Dow just slashed a 785-point plunge, marking its most stunning reversal since March

Stocks could be set up for another violent week of selling.
Stocks could continue to take a beating and aim for a retest of lows, after one of the most brutal weeks for the market this year. The past week was one of the worst of 2018, with the Dow down 4.5 percent at 24,388, and the Nasdaq down nearly 5 percent, at 6,969. The S&P 500 was down 4.6 percent at 2,633, just 2 points above its November low. The S&P suffered its worst week since March and the third worst of the year. As stocks melted down, bonds rallied, sending their own spooky message as the yield curve flattened and even inverted at some points — a sign of potential economic trouble ahead.

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