Dow Jones Industrial Average / Death Cross (Aug. 2015)
Below a chart of the famous Dow Jones (DJIA) from Aug. 2014 up to Tuesday, 11th Aug. 2015 and the famous Death Cross:
A rare “death cross” appeared Tuesday, 11th Aug. 2015, in the chart of the Dow Jones Industrial Average, suggesting the stock market may have already begun a new long-term downtrend (my remark: this still has to be confirmed...).
A death cross is said to have occurred when the 50-day simple moving average, which many use to track the short-term trend, crosses below the 200-day moving average, which is widely used to gauge the health of the longer-term trend.
For the Dow industrials, it marked the first time the 50-day moving average, which ended Tuesday, 11th August 2015, at 17,806.99, was below the 200-day moving average, at 17,813.42, since Dec. 30, 2011, according to FactSet.
Many technicians see the death cross as marking the spot that a shorter-term pullback morphs into a longer-term downtrend. BUT: Some technicians argue that death crosses actually signal buying opportunities during bull markets, since some previous ones have appeared right around market bottoms. Others say it’s not a true death cross unless the 200-day moving average is declining when the 50-day moving average crosses below it.
As can be seen in the following chart / The 50-day moving average (or “MA”) crossed below a rising 200-day MA on July 7, 2010, when the Dow closed at 10,018.28. The Dow’s closing low for 2010 was actually hit two sessions earlier, at 9,686.48:
But the Dow fell another 5.9% over six weeks after the Aug. 24, 2011 death cross, and tumbled as much as 50% over 14 months after the one appearing on Jan. 3, 2008.
And keep in mind that when the January 2008 death cross appeared, the Dow had lost just 7.8% from its Oct. 9, 2007 peak. That means the bull market was still firmly in place, as the rule of thumb is a bear market is defined by a decline of at least 20% from a significant peak.
original text/source: http://www.marketwatch.com