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Wednesday, August 12, 2015

Daily update 8/12 Dow industrials death cross

Strong rebound from support.

In keeping with the theme of not going anywhere this year, SPX tried to break the lower trend line.  The bulls would have none of that though.  Volume was heavy.  The selling this morning stopped when Europe closed.  The bulls took charge after that.  We haven't seen a move like that in a long time.

The futures hit the green support line and stopped dead.  Once it started to bounce short covering took over and away it went.  Price just made it back to the 18 SMA.  The futures are still below all key MAs.

The bulls are certainly trying to hold the market up.  Emotions seem to be increasing now.  While today was a strong rebound the market didn't do enough to say it is on the way higher.  Thursdays have been the strongest day of the week all year.  Maybe people were buying in ahead of that late today.  The bulls may run it up some more tomorrow, overnight news permitting.  

The first MA crossover I ever studied was the very famous 50 and 200 SMAs known as the golden cross and death cross.  On most stocks by the time a cross is formed the move is usually over.  In other words I found them mostly useless.  However, according to this article there is some validity to the death cross on the Dow.  A closer look at the death cross

There are several studies in the article going back to 1900.  All show 12 month under performance versus any time returns.  Even more curious is the two studies that most closely resemble the current situation.

The Dow is positive just 40% of the time 1 year out when the death cross occurs 500 or more days since the last cross.  We are more then 900 days.  The next one is even worse.

The Dow is positive just 33% of the time 1 year out when the death cross occurs within 7.5% of an all time high.

The odds say the current price formation is more likely some kind of top rather then a consolidation to go higher.  The utilities and the transports have also had death crosses.  I don't know if that makes the odds any higher for the bears or not.  It seems likely it would.  The market continues to weaker and weaker.


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