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Death Cross Alert: Time to Sell?

What is a Death Cross?


A Death Cross occurs when a securitys short-term moving average falls below its long-term moving
average. All eyes are on the 50-day and 200-day Moving Averages (MA) for this.
A Death Cross is indicative of a market moving towards a bearish zone.
The signal has more significance if the formation is supported by higher volumes. Furthermore, post a
Death Cross, the long-term moving average acts as the new resistance in rising markets.

Decoding Historical Trends?


Historical trends suggest that the market turns bearish for at least 5070 days after a Death Cross
formation (accompanied by higher volumes) before changing its direction. However, if the market does
not witness a Golden Cross (the short-term moving average breaks above the long-term moving average)
even after 7090 days, without any reduction in the gap between the 50-day and 200-day MAs, a crash

may appear inevitable. This pattern was observed in 2000 and 2008, as evident from the chart. During
these instances, the 50-day MA remained lower than the 200-day MA for more than 300 days.

Why Should it Concern You?


A Death Cross pattern occurred twice over the last 90 days in the NASDAQ Composite Index (its first time
since late 2011) along with high trading volumes.
After the first Death Cross formation, the bearish period lasted for more than 50 days.
The latest incident occurred in mid-January 2016.

These trends indicate a bearish market for another 3040 days.

Views on Other Stock Exchanges Across the Globe


Similar trends have been observed in several markets across the globe.
While most markets are showcasing a bearish trend, some markets such as the DAX (Germany) and the
Nikkei 225 (Japan) have shrugged it off.
The following table lists markets that gave strong signals after Death Cross formations:

Index

Death Cross
Occurrence

Gap Between 50day MA and


200-day MA*

Death Cross
Accompanied by
Higher Trading
Volumes

Comment

TASI (Saudi
Arabia)

Mid-August
2015

Increasing

Accompanied by
higher trading
volumes.

Bear market
in the near
term.

NIFTY
(India)

Mid-June 2015

Increasing

Mixed signals.

Bear market
in the near
term.

DAX
(Germany)

Early
September
2015

Decreasing

Accompanied by
higher trading
volumes.

End of the
bear market.

Nikkei
(Japan)

Early October
2015

Decreasing

Accompanied by
higher trading
volumes.

End of the
bear market.

Hang Seng
(Hong Kong)

End of August
2015

Increasing

Not accompanied by
higher trading
volumes.

Bear market
in the near
term.

Sources: Bloomberg, Reuter Eikon, Aranca Research


* Data as of February 02, 2016

Is it Time to Sell?
A sale can be deferred if the market starts rising over the next 5060 days.
If a Death Cross continues beyond the next 5060 days however it may be advisable based on historical
trends to exit the market.

But There is Hope!


If the market starts rising and forms a Golden Cross in the next 5060 days, it may be a short-term buying
opportunity.

About Aranca:
Aranca is a leading provider of high quality, customized and cost effective research and analytics to global
clients. Founded in UK in 2003, Aranca has a global presence including in the US, Europe and Middle East,
and a state-of-the-art delivery center in Mumbai, India.
Our research solutions are structured around four complementary business lines: Investment Research,
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