We aren’t big fans of technical analysis, but a lot of people are — which is why the following is generating a lot of interest in the City.
It’s called a death cross and it’s triggered when the 50-day moving average crosses below the 200-day average. Apparently if you had followed the “sell” signals generated by this analysis going back five years, the P&L gain would have been 56 per cent.
However, there’s plenty of past evidence to suggest a different outcome, and given the speed of market moves in both directions last week, we aren’t sure what, if anything, can be read in the runes. Also shouldn’t the 200 day average be falling in a real death cross?
Still, it sounds scary.
Ian McAvity says the following of the death cross:
I view this as a lagging, trend confirmation tool. There are often sharp rallies back up to the intersection level to work off initial oversold conditions that pushed the 50-Day downwards. It didn’t follow through when it occurred a year ago. That could occur again, but that’s not a bet I would make.
Ian points out that in his last issue, he
noted the “death cross” on 10 Year yields, suggesting that rates were heading down…contrary to popular opinions cited in the media.