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Be Patient: Wait for the Death Crosses!

UPDATED

Tops & Trend Reversals are a Process

Published 05-28-14

A "Death Cross" occurs when a short term moving average breaks below a long term moving average or support level. These key signals are triggers that institutions react to and almost all computer driven trading platforms are programmed to take action on. These triggers always occur at major trend reversals and are almost always part of a market topping process. Therefore they are critical signals to watch very closely. We presently have them potentially setting up on the near term horizon.

The crosses to watch are:

  • DAILY: 50, 100 and 200 DMA,
  • WEEKLY: 20, 40 and 80 WMA,
  • MONTHLY: 6, 12 and 24 MMA

Here is where we presently stand in what we view as an Intermediate Term Topping Process. We have used the S&P 500 SPDR "SPY" as are signal tracer since it is closely alligned with options trading.

DAILY

Computerized trading uses the 50, 100 and 200 Day Moving Average (DMA) quite extensively for basic support and resistance determination. For volatile markets the corresponding Exponential Moving Averages (EMA) are often substituted and become more important as 'banding" occurs and the possibility of "Death Crosses" approach.

We can see how often the "banding" and "crossing" process of the moving averages often creates the classic and very recognizable "Head and Shoulders" topping pattern. As expected the higher risk stocks are presently leading the way (Read: Risk is Leaving the Market)

WEEKLY

The weekly moving averages most often employed are the 20, 40 and 80 Week Moving Averages. Institutions like to use weekly charts because they are trying to catch the major moves and because of the size of lots they are realligning. The biggest market gains and loses are often found when the weekly moving averages cross, signalling longer term trend changes.

In our MATA services document we regularly use the 80 WMA to determine the overall Boundary Conditions of the markets. It was found highly successful in trading the 2008 Financial Crisis and its 2 standard deviation bands (below) have bounded upper limits of trading moves since 2008.

To ensure we have full visibility to key trend patterns emerging (which would support the significance of shorter term DMA crosses) we additionally use the longer term 160 WMA, with regression channel overlays, to bridge to Monthly Moving averages. The MMA delivers the markets primary trend.

MONTHLY

We consider the Monthly Moving averages of 6,12 and 24 to be our key tool in determining the "Primary Trend" of the market. You don't trade from it but you do postition "Trend Following" strategies based on it.

In the short term the three signals to watch for are:

  1. Always wait for the 2 standard deviation Bollinger Band on the 12 MMA to "curl" (see arrow below) to signal pending trend changes.
  2. Use the RSI (Relative Strength Indicator) Oscillator to identify underlying patterns and trend resistance and support.
  3. Use "Key Reversal" monthly bars as repositioning signals when the monthly bar achieves a new closing high but then closes below the previous month's closing low.

TYPES OF ACTIVITY OFTEN ACCOMPANYING THE 'DEATH CROSS' PROCESS

Based on the current Moving Average pattern profiles, below are:

Initial Release Projection for the SPY in the Intermediate and Longer Term.

Current Results

LATEST TRIGGER$ WEEKLY CHART

 

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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that you are encouraged to confirm the facts on your own before making important investment commitments.

© Copyright 2013 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or suggestions you receive from him.

 

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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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