A HISTORY OF THE STOCK MARKET’S DEATH CROSS

There has been much talk in the financial press lately about the “death cross” (a.k.a. dark cross) that is threatening to rear its ugly head in the S&P 500 and the NASDAQ, not to mention the DOW and the FUTURES.  The death cross is simply the market’s way of  describing the 50 period moving average crossing below its sister the 200 period moving average.  The opposite of the death cross is the golden cross that last made its appearance in June 2009, the beginning of the bull rally from the edge of the abyss.  Supposedly, when these moving averages cross it is time to either go long or short, depending on the cross.  PLEASE NOTE: do not let the GOLDEN CROSS pass you by.

The death cross, while threatening the indices mentioned above, has already formed on the NYSE Composite Index and the $OEX (S&P 100).   In the charts below the pink line is the 50 SMA and the brown line represents the 200 SMA.  You can clearly see what is happening.

NYSE "DEATH CROSS"

OEX "DEATH CROSS"

Here is a list of recent death crosses based on stocks that are optionable, 1M+ average daily volume, and $15+ a share:

Is this really as ominous a sign as it sounds?  Could be.  But let’s look at the numbers.  What follows are some interesting statistics about the average returns for the S&P 500 (since 1930) after a death cross forms.  The numbers may or may not surprise you.  My thoughts?  Trade the current market according to your rules with a curious eye focused on the past.

These tables were emailed to me today by Ron Griess and Mark Cremonie at thechartstore.com. Check them out when you get a chance.