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Berlin, Europe
Market Wizard
Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker: Interactive Brokers
Trading: Keyboard
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Another fancy way to predict a bear market: the death cross, which is a downward crossover of the 50-day SMA over the 200-day SMA.
The second but the last death cross occured on December 10, 2007. The first close below the SMA(50) after the breakout pullback occured on December 27, 2007. Would not have been a bad moment to enter a short position.
The very last death cross could be seen on July 7, the close below the SMA(50) occured on August 11 (last Wednesday), the day after the FED announcement. So be prepared.
February 26, 1990
Signal preceded the last leg down of the bear market
July 9, 1990
Signal failed, the largest bull market stared just 2 months later
April 19, 1994
Signal failed, bull market continued
September 29, 1998
Signal not confirmed, continuation of the bull market, as price was not able to return below the SMA(50)
October 30, 2000
The retest confirmed the cross with a close below SMA(50) on November 8, 2000. This triggered a major bear market and ES dropped 640 points over the next two years.
August 18, 2004
Signal failed and the bull market lived on happily for some more years.
July 19, 2006
The retest saw no close below the SMA(50), and the bull market went on.
December 27, 2007
Started a major bear market.
To summarize: This is the ninth death cross during the last 20 years. Of the prior eight signals
- 2 were not confirmed by a consecutive close below SMA(50)
- 3 signals failed
- 1 signal triggered a minor down move
- 2 signals triggered strong bear markets
Conclusion: Moving average cross-overs are notoriously unreliable, even if you call them "Death Cross".
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