Friday, June 25

Stock Market Today Death Cross ?

Stock Market Today - Death Cross in the Markets?


DEATH CROSS UPDATE : July 15 - After the recent moves higher in the stock markets the stock price chart is moving back towards the 200 day moving average, it will be interesting to see what the markets do once they hit their 200 day moving averages and if the famous Death Cross will hold or if it will be cancelled out.

Banks moved higher today on the DOW as the financial reform bill was seen as being not too bad for banks after all, but the rest of the market was broadly flat.

The new financial reform bill is designed to stop banks making risky bets with their own money, but some will still be allowed to participate in hedge funds and private equity funds. Financial services rose 3.4%, investment banks and brokerages rose 3.1%, and specialized finance rose 3.0%. Overall the financial sector was up 2.8%.

The DOW finished down 9 points, the NASDAQ was up 6 and the S&P was up 3.

There is still plenty of talk however of a double dip recession and the FTSE is apparently forming a "death cross" which sounds very nasty. A death cross occurs when the 50 day moving average crosses the 200 day moving average on the way down. For a particularly nasty example of such a chart formation take a look at the BP chart here - BP death cross

FTSE 100 1 year chart with 50 day (in red) and 200 day moving averages (in green) - Is this the dreaded "Death Cross"?




DOW Jones 1 year chart with 50 day and 200 day moving averages - similar too the FTSE but not quite



It has also been pointed out to me that the rate at which the 50 day m.. is approaching the 200 day m.a. is too fast to prevent the death cross from forming. So we shall see what happens thereafter.

So what is a death cross on the stock market and what does it mean, if anything ?

A death cross is defined as the long-term moving average breaking above the short-term moving average or support level or to put it more clearly it is when the short-term moving average corsses below the long term moving average and it is a bearish signal indicating nothing good on the stock markets. It is a particularly strong signal when the 50 day moving average crosses the 200 day moving average.

It is also worth noting that if the markets do sell off after this 'death cross' then the crossing point then becomes resistance on the way back up.

The next few days will show whether there is indeed a death cross on the DOW and the FTSE or if they will pull themselves out of it.

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