Wednesday, August 10, 2011

Look Past the Current Crises and See.... An S&P Death Cross

Last June the investment blogsphere was filled with warnings of this Death Cross or that Death Cross.
I don't take them seriously, here's an example:
"Iron Cross in the Oil Service Sector" (BH; HAL; RIG; SLB; OSX)
I always think of Fat Hermann and feel a need for umlauts when I see the term.
From Bespoke Investment Group:

Given the spill in the Gulf of Mexico, it's certainly no surprise that the Philadelphia Oil Service Index (OSX) is down 25% from its recent highs.  Given the declines, is the bad news already priced in?  According to one popular formation in technical analysis, the answer is no.  As shown in the chart, the OSX index is on the verge of completing an 'iron cross' pattern.  An iron cross occurs when a stock or index's short term moving average (50-DMA) falls below the longer term moving average (200-DMA) while both are decreasing.  According to people who follow technical analysis, an iron cross is typically a prelude to further losses....blah, blah, blah.
So how good a sell signal has an iron cross been on a historical basis....MORE
To answer that question here's Herr Göring wearing a few of his crosses, including the one-and-only Grand Cross of the Iron Cross:

Definitely a short.
Anyway, here's a quick hit from MarketWatch:
Beware the S&P 500 ‘death cross’
As if there wasn’t enough to worry about.  John Nyaradi of Wall Street Sector Selector is watching a trend line that puts the S&P 500’s SPX 50-day moving average close to sinking below its 200-day moving average. “We remain convincingly below the two moving averages which are developing downward slopes as they near their crossover point,” he writes....MORE
As MarketBeat pointed out a few weeks later, the Death Cross is hooey.

There is a technical formation which should strike fear into the hearts of market participants and which we posted two days before the current down-turn began:

Repost: "Technical Analysis: S&P Black Swan Formation"

The earlier Taleb post got me thinking of this, originally posted jan. 29, 2009:

Lifted from BloggingStocks:

A message board poster has put this hilarious chart showing that S&P 500 could be in for a rough ride. He writes that "The very rare black swan formation - note both feet and neck are complete and the rare vampire tooth variation is in place. This is very bad. Very very bad."...