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Dow's 'Death Cross' Pattern 'Ominous'

Dow's 'Death Cross' Pattern 'Ominous'
(Dollar Photo Club)

By    |   Friday, 14 August 2015 08:29 AM

The Dow Jones Industrial Average completed a rare and ominous sounding "Death Cross" chart pattern this week. It’s possible to test what happened in the past after this pattern formed. That will give us data to see whether or not we should pay attention to the Death Cross.

A Death Cross occurs when the 50-day moving average (MA) falls below the 200-day MA. Technical analysts use an MA to determine the direction of the price trend. An MA is a simple average of the last 50 or 200 days’ closing prices. If the price is above the MA, it’s higher than average and in an up trend. A down trend means prices are below average.

It’s also possible to track several MAs like we see in the Death Cross. This is a rare pattern with just 13 signals in the Dow since 1990. If you had taken each signal, you would have missed the devastating bear market of 2008. However, that was just one of the three winning trades this pattern delivered. The other ten signals (77 percent) were losing trades.

It’s also possible to test the Death Cross using a “timed exit” and closing the trade some number of days after the signal. This tests how well the signal does in spotting large market declines. That strategy also results in most trades being losers at all timeframes from one week to six months.

The Death Cross just doesn’t work well. Stocks might indeed fall but the more likely cause is problems in China or elsewhere in the world rather than a chart pattern with an ominous name.


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MichaelCarr
The Dow Jones Industrial Average completed a rare and ominous sounding Death Cross chart pattern this week. It's possible to test what happened in the past after this pattern formed. That will give us data to see whether or not we should pay attention to the Death Cross.
death cross, stock trading, investing, dow industrials
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2015-29-14
Friday, 14 August 2015 08:29 AM
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