Thoughts and observations for those investing on their own or contemplating doing it themselves.
If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at http://www.rwinvestmentstrategies.com. If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.
Wednesday, July 18, 2012
What is the "Death Cross"?
What is a Moving Average?
A moving average is constructed by dropping a term in the past and adding the most recent term and then taking the average. As a simple example, consider a 5-day moving average of the temperature. Today we would add the daily temperatures of the past 5 days and take the average. Tomorrow we would drop the oldest day and add in the new temperature and again calculate the average temperature. Continue for a period of time and you get a numerical sense of whether it is getting cooler or warmer.
If you want a challenge, see if you can find a bored teenager (easy part) who can calculate and graph a 5-day moving average of the temperature over the next 10 days without a calculator. Good luck!
The Death Cross
Short-term trends relative to long-term trends are significant in technical analysis. These are captured by various moving averages derived from laborious studies of past data. One that stands out is the 50-day moving average relative to the 200-day moving average. When the 50-day average moves above or below the longer term 200-day average, it gives the technician an important signal of a buy or sell, respectively. It is an important tool in the kit of those who follow this approach.
Well, the "Ultimate Death Cross" to which Albert Edwards, of Societe Generale, has alerted the investment community is the impending fall of the 50-month moving average of the S&P 500 through the 200-month moving average. In the past, including Japan in 1988, this has been followed by a long-term bear market.
Edwards adds in that declining analyst optimism data also implies a pending bear market.
Posted by Robert Wasilewski at 7:51 AM
Subscribe to: Post Comments (Atom)
Post a Comment