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Dow Death Crosses Since 1950: Welcome to the Indicator Graveyard
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By:
By: Jeffrey A. Hirsch & Christopher Mistal
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August 18, 2015
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Following up on all the hullabaloo on the recent DJIA “death cross,” we ran all the data on all the death crosses and “golden crosses” since 1950. For the uninitiated and for clarity a death cross is when a short-term moving average of an index or stock crosses below a long-term moving average and a golden cross is the revers, when a short-term moving average crosses above a long-term moving average. It is common to use the 50-day and 200-day moving averages. And that is what happened to DJIA on August 11; its 50-day moving average crossed below its 200-day moving average.
The reason it’s called a “death cross” is because it is believed to be an indicator of an imminent market decline. Back in the old days from 1950-1982 it was a decent bear market indicator, but not so much anymore. In the table I have highlighted in yellow the death cross dates before or during bear markets as well as the associated bear market bottom. Since 1982 there are a many more death crosses that occur without any major subsequent decline.
Even more significant is that most of these death crosses occurred after a substantial decline had already occurred and there was little further downside after the death cross in the short-term, generally followed by a move higher rather quickly. For the most part death crosses have occurred near low points.
On some occasions the death cross has preceded a major downdraft ahead of the bulk of a bear market move, most of them transpired in the 1950s, 1960s, 1970s and 1980s. In recent years only the crosses in 2001, 2002 and 2008 have been indicative. We have laid out all the data for your perusal. One thing does stand out. It appears that if the market bounces a few percent higher immediately after the death cross, the next move lower appeared much more substantial.
Bottom line, there are much better indicators than the death cross in the Stock Trader’s Almanac and elsewhere. The golden cross seems much more indicative of further upside than the death cross of further downside. Since its recent death cross on August 11 DJIA was up 0.8% on the close of August 17.
DJIA is down about 5.3% and S&P is down 1.6% since the May high and NASDAQ is down about 3% since the July high. Being in the midst of the worst two months of the year (August and September) and with the market on shaky ground, further downside is not unlikely, but the bear does not seem to be lurking just yet. Be prepared for a further 5-10% slide before this correction ends late-summer/early-fall.