The S&P 500 Index's "Death Cross"

schmd2000

By Rocky White, Senior Quantitative Analyst

Two heavily watched moving averages on the S&P 500 Index (SPX) are converging. A lot of technicians are talking about the upcoming "Death Cross." That's when the 50-day moving average of the index crosses below the 200-day moving average. This is looked at as a bearish signal -- especially since the last Death Cross, which happened in late 2007. The market fell more than 40% over the next 52 weeks.

The opposite of the Death Cross is the Golden Cross, which is when the 50-day moves above the 200-day. Below is a chart of the SPX since 1998 with each Golden Cross and Death Cross marked. The Death Crosses that occurred in late 2000 and late 2007 were very good sell signals. The other four simply marked bull market pullbacks.


Going back to 1972, there have been 18 Golden Crosses and Death Crosses. I looked at the data following these signals to see just how reliable they are at predicting the market. The first table below shows the average SPX returns after a signal from one month to one year later. The second table shows the percentage of returns that were positive. The term Death Cross is a lot scarier than the actual returns.

The table shows that the average return three and six months after a Death Cross outperform the typical SPX returns, even though there are fewer positive returns than you would typically find. However, there is underperformance one year later. The results following a Golden Cross are quite impressive relative to what the market usually returns.


Death Crosses have had mixed results as an indicator, at times signaling the beginning of a painful extended decline, but at other times signaling the end of a short-term pullback. It might be a good idea to have hedges in place.

One thing to keep in mind about these widely watched technical levels is that they tend to garner a lot of media attention. A glaring media spotlight could actually have a contrarian effect on the indicator. For example, if media attention to the Death Cross strikes enough fear into traders, then they might sell before it occurs, or put on hedges so they're not forced to liquidate losing positions. In this situation, the selling pressure is exhausted by the time the Death Cross occurs. Remaining sideline money and the subsequent unwind from the hedges can then actually instigate a rally.

schmd2000

回复 1# schmd2000

schmd2000

Here are the charts, http://www.hutong9.net/viewthrea ... &extra=page%3D1

源济

源济

WOW

源济 发表于 2010-7-6 16:27

    看上去有DEATH CROSS应做熊, 如果错了是底那GOLD CROSS应马上出现, CUT LOSS再做牛也不迟.

hfang01

Thanks!

nanosensor

Ding!

hhli3

回复 6# WOW


    sounds like a good plan.

navybean

Thanks

bilko540