Global stocks see Death Cross incoming - TA tips for traders and investors

Timing is everything when it comes to trading. Whether in cryptocurrencies or traditional markets, technical analysts of asset charts will tell you about market cycles and moving average indicators. So when I came across a report today about the “Death Cross” spotted on the S&P500 price chart, I decided to take a deeper look into it. Looking into the face of death is not for everyone, particularly long term bag “hodlers” who are attached to their bags, like a sleeping soul who identifies with his meat bag. But the detached investor or trader will stare it in the eye and say “I see you, but this too shall pass.” Still, when seeing the signs of the times an observant person will take the appropriate action to prepare, based on this foreshadowing of things to come. So what is the death cross and how is it impacting the financial world, historically and today?
Death cross fang in stock graphs.JPG

The death cross rears its head
The death cross is a technical indicator that occurs when the 50 day MA (moving average indicator) crosses and moves below the 200 day MA. Just yesterday, Friday 7 December, the Death Cross was spotted on the daily price chart of the S&P500. If you follow financial markets you will already know that they are pretty much all in a downtrend already. The Russel2000 and the Nasdaq Composite Index both had their death cross moments in November already. Now as the S&P500 follows suit, it seems to indicate – based on past experience – that we are not only in a correction and downtrend, but that this global bear market may be in for a protracted extension, added to the further price retracement. We’re going down!

Global market crash
If you thought crypto was in a tragic state, retracing 90% since the ATH (all time high) of December 2017, don’t worry because it’s not alone. The entire stock market is in the same boat. Both the Dow Jones and the S&P500 have wiped out their entire gains for 2018. The Nasdaq Composite is down, the favorite FAANG stocks (Facebook, Amazon, Apple, Netflix, Google), darlings of the conservative traders, are all leading the crash. One of them, Apple, has also lost all its gains made this year. The intense volatility and choppiness of the Dow Jones Industrial Average is enough to make the most seasoned sailor of the trade winds seasick in his boots.

It’s not about the personalities
Sometimes even one person alone can push a stock or even the entire market down. This week the CEO of Huawei was arrested, sending the market on a tumble. Remember how last year just one tweet from John McCafee would send a coin pumping for the day? And then the next day it would be another coin, and then another, on and on. Very sentimental if you ask me. Regardless of fundamentals or real use case value, an arbitrary cryptocurrency or new ICO token would get some shilling from a big name personality and FOMO would send traders running to the exchange to buy it up like ice cream on a hot summer’s day, before it melted, as it usually does. But then we know that it is sentiment that moves prices in crypto more than anything else among retail investors.

"You've gone from a period of zero sensitivity to headlines to a period of hypersensitivity. We're now in a world where no one knows which way is up and which way is down."
James Athey, senior investment manager at Aberdeen Standard Investments. "

Looking for calm in the eye of the storm
It seems the markets are jittery. Nobody knows which way to go, or which way price will go. We are in “no trade land”, where news and rumors of news are enough to spook us into some instinctive knee-jerk over-reaction of our buy and sell trigger finger. This is not a healthy state of affairs. The entire financial and political world is on the edge of their seats, unsure of anything anymore. Nevertheless, seasoned sailors of the trade routes look at their charts and follow the indicators, based on experience. And the death cross is just one of those big indicators.

Sell now or forever hodl your bag
Historically the death cross has foreshadowed the great financial crashes of 1929, 1938, 1974 and 2008. Sometimes false alarms do occur though, and it signals nothing more than an opportunity to “buy the dip” for that melting ice cream. However, if we’re already in a certain bear market – like we are now – then it’s likely that this is more than just a rumor or false alarm. And when you hear the alarm going off like a trade alert signal on your portfolio, you sell. If you haven’t already. Or more specifically, if you see an accompanying spike in volume at the death cross, then you join the rest of the rats as they jump the sinking ship. Increased volume is your confirmation signal here.

According to https://www.stockopedia.com/chart-signals/death-cross-5179/3/ over 400 stocks are showing the death cross in their price charts in the past three days and 700 in the past five days. That sounds like a lot because it is. By comparison the opposite bullish signal, called the “golden cross” is only visible in 186 share price graphs over the past five days. Of course, I’m not a financial advisor and this is not financial advice, but it does make for interesting observations.

Death cross in the Bitcoin price chart
I looked at the Bitcoin 1 day price chart to see where our crypto death cross lay and I noticed a definite correlation with the two major bear market cycles. The most recent occurrences were firstly in April and September 2014, and again secondly in March (50 day) and April 2018 (100 day) crossing below the 200 day MA in Bitcoin in the Bitfinex chart on the Tradingview website. I think it helps to look at both the 50 and 100 daily MA to see their relation to the 200 MA. On both of these historic occasions the death cross occurred just after the massive bull runs to ATH prices. As price crashed hard, the death cross indicated the serious bear market to come. In 2014 the opposite “Golden cross” only occurred a full year later in July (100 day) and October 2015 (50 day), where they moved back up over the 200 MA to suggest a bull run. However this year the death cross that occurred in March 2018 has yet to be reversed as the 50 and 100 day MA still remain below the 200 day all this time. Until the golden cross occurs and the short time frame MAs move back up above the longer one, we are still in a bear market. And judging by the gap between them, it may still be a while before that changes.
death cross graph bitcoin 2018.jpg

Of course some analysts will tell you that these are lagging indicators of past price action and we should not read too much into them by themselves, but generally more often than not they do indicate a continued bear market. If this is true and the global mainstream financial stock markets are going into death cross territory, then it may well indicate a coming crash. Maybe. Bitcoin is already in a protracted bear market so nothing new there. A global financial slump may take crypto prices down with it still further of course, since there is no inverse correlation between stock prices and crypto prices unfortunately. Crypto simply isn’t the safe haven we are hoping for in a financial crisis...not yet anyway.

Let’s keep a close eye on the price action and volatility, while preparing the most comfortable deck chairs on the Titanic so we have the best view when the bow hits the berg with a crash.
death cross stats since 1929.jpg

References:
https://www.cnbc.com/2018/12/07/stock-market-dow-futures-fall-ahead-of-unemployment-figures.html
https://www.cnbc.com/2018/12/07/scary-chart-pattern-signals-more-stock-market-selling.html?
https://www.investopedia.com/terms/d/deathcross.asp

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