Tracking the DJIA Death Cross Technical Pattern
$DIA
The DJIA (NYSEArca:DIA) completed the rare and troubling Death Cross technical pattern this week.
So, it is possible to test what happened in the past after this pattern formed, such a test provides data to see whether or not we should pay attention to the Death Cross.
A Death Cross occurs when the 50-Day MA falls below the 200-Day MA.
Technical analysts use the MA’s (moving averages) to determine the direction of the price trend. An MA is a simple average of the last 50 or 200 days’ closing prices sometimes styled SMA. If the price is above the MA, it’s higher than average and in an Northside trend. A Southside trend means prices are below average.
It is also possible to track several MA’s like seen in the Death Cross.
This is a rare pattern with only 13 indications in the DJIA since Y 1990. If we took each indication, we would have missed the huge Bear market of Y 2008, that was just one of the 3 winning trades this pattern delivered. The other 10 signals (77%) were losing trades.
It is also possible to test the Death Cross using a timed exit and closing the trade some number of days after the indicator. This tests how well the indicator does in spotting large market declines. That strategy results in most trades being losers at all frames from 1 week to 6 months.
The Death Cross indicator does not work well.
Stocks might fall, but the more likely cause is a fundamental and sentiment problem as in China or elsewhere rather than a chart pattern with an scary moniker.
Have a terrific weekend.
HeffX-LTN
Paul Ebeling
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