Death Crosses?

Many pundits have been in “buying” mode, flapping on about looking for the right time to buy.  I am beginning to wonder if anyone has studied to correlation between market performance and television pundits commentaries.  All this talk of equities being cheap, no double dip, and yada, yada, yada, but I have not heard anyone mention that one of the single worst technical indicators is rearing its ugly head.

Take a look at four major index charts below, each with moving averages.  A death cross in technical talk is when a shorter moving average line crosses a longer moving average line.  The most common comparison are the 50 and 200 day moving averages.  When the 50 day moving average falls below the 200 day, it typically hints that a bull market is coming to an end, as the buyers of equities no longer wish to pay ever higher prices for the stocks in the index.  In the charts below the green line is the 50 day SMA (simple moving average), and the yellow line is the 200 day.  The purple line is the 10 day which is not as relevant here.

Looks like the S&P and the Nasdaq have already printed a “death cross”.  The Dow Transports are just about to as well.  The only index not “confirming” a major fall is imminent is the Dow.  I don’t know man, I’m not totally religious on this crap, but 3/4 is fairly hard to ignore.  My advice is to read that last post, the white paper about tail risk hedging.  This looks like its about to get really ugly soon.

*Note, however, this signal showed up last summer, during the first European Sovereign crisis, and the “death cross” that occurred did not confirm an end to the bull market.  One could easily argue, however, that today the world and world markets are on far softer footing than they were a year ago.  I would heed these signs.

Bloomberg Chart: S&P 500 Index with Moving Averages "Death Cross", August 17, 2011

Bloomberg Chart: Nasdaq Index with Moving Averages "Death Cross", August 17, 2011

Bloomberg Chart: Dow Jones Transportation Index with Moving Averages "Death Cross", August 17, 2011

Bloomberg Chart: Dow Jones Industrial Index with Moving Averages "Death Cross", August 17, 2011

In other news, the TED Spread is finally starting to widen.  The TED spread is generally accepted as one measure of risk in the banking system. I imagine this may continue as we approach the end of the short selling ban in Europe in a week or so.  My guess is when markets are free to be shorted, banks may rethink their willingness to take overnight risk with one another.

Bloomberg Chart: TED1 - 1-Month TED Spread as of August 17, 2011

Bloomberg Chart: TED1 - 3-Month TED Spread as of August 17, 2011

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