Today is Death Cross Day – August 11, 2011

[Billy]

Forum Clusters 110811.xlsx

The 50-day moving averages of IWM, SPY and QQQ are all expected to close today below their respective 200-day moving averages. Known as a “death cross” this signal is usually assimilated with very bearish conclusions for the long term trend. However, we have witnessed many times before that such an event coincided with the bottom of the first wave down in a major downtrend. A very good tradable rally often starts right from the “death cross” day leaving behind those who become too obsessed and paralyzed by the ominous cross. That’s why, although the 20 DMF still didn’t issue a buy signal after being poised to at 2:00 pm yesterday, any buy signal today or in the coming days might prove very powerful.

This would also confirm that YS1 (64.40) was the low target area of the first wave down. Staying in cash allows us to calmly watch if that support around Monday’s lows holds. An intraday undercut down to WS2 (62.66) seems the maximal floor extension acceptable to avoid a total panic crash. There are simply no significant floor supports left below to build a credible multi-pivot strategy in case of a further freefall below YS1.



In contrast, today’s buy signal at the open on GDX has a wonderful multi-pivot setup, with a very strong first support cluster (strength = 25) and moderate first resistance cluster (strength = 18). The total floor resistance clusters with strength of (18 + 6) 24 compared to total floor support clusters with strength of (25 +15 ) 40 suggest that floor traders and market makers will be supporting momentum to the upside, barring any adverse news.
Billy

[adam ali]

Billy,

Could you put up the SPY chart, if possible - thanks.

[Timothy Clontz]

Billy,

Two weeks ago I posted that we had hit the death cross in real value (not nominal value) on the S&P and pointed out a likely decline.

I posted the link, but here it is again:

http://stockcharts.com/h-sc/ui?s=%24spx%3Audn

You'll see that the decline happened a couple of days later.

I still got caught with my pants down because I wasn't using my own advice... but it was a lesson learned.

Basically all the dollar gyrations create false signals, and dividing the S&P by the inverse of the dollar ($SPX:UDN on stockcharts) filters out the noise and gives a truer signal.

Tim

[Billy]

Billy,

Could you put up the SPY chart, if possible - thanks.

Here are the SPY and QQQ charts.
SPY's floor outlook is very similar to IWM, with YS1 as ultimate support.
QQQ's low target is YPP.
Billy

[Billy]

Billy,

Two weeks ago I posted that we had hit the death cross in real value (not nominal value) on the S&P and pointed out a likely decline.

I posted the link, but here it is again:

http://stockcharts.com/h-sc/ui?s=%24spx%3Audn

You'll see that the decline happened a couple of days later.

I still got caught with my pants down because I wasn't using my own advice... but it was a lesson learned.

Basically all the dollar gyrations create false signals, and dividing the S&P by the inverse of the dollar ($SPX:UDN on stockcharts) filters out the noise and gives a truer signal.

Tim

Thank you Tim,
You certainly deserve to be credited with this one. Do you have any study or backtests of previous old signals?
Billy

[manucastle]

Attachment 9796

The 50-day moving averages of IWM, SPY and QQQ are all expected to close today below their respective 200-day moving averages. Known as a “death cross” this signal is usually assimilated with very bearish conclusions for the long term trend. However, we have witnessed many times before that such an event coincided with the bottom of the first wave down in a major downtrend. A very good tradable rally often starts right from the “death cross” day leaving behind those who become too obsessed and paralyzed by the ominous cross. That’s why, although the 20 DMF still didn’t issue a buy signal after being poised to at 2:00 pm yesterday, any buy signal today or in the coming days might prove very powerful.

This would also confirm that YS1 (64.40) was the low target area of the first wave down. Staying in cash allows us to calmly watch if that support around Monday’s lows holds. An intraday undercut down to WS2 (62.66) seems the maximal floor extension acceptable to avoid a total panic crash. There are simply no significant floor supports left below to build a credible multi-pivot strategy in case of a further freefall below YS1.

Attachment 9795

In contrast, today’s buy signal at the open on GDX has a wonderful multi-pivot setup, with a very strong first support cluster (strength = 25) and moderate first resistance cluster (strength = 10). The total floor resistance clusters with strength of (10 + 6) 16 compared to total floor support clusters with strength of (25 +15 ) 40 suggest that floor traders and market makers will be supporting momentum to the upside, barring any adverse news.
Billy

Attachment 9794

Billy,

Looking at your Excel page the First Resistance cluster for GDX is 18 is it not ? (You mentioned 10 above).

Trev

[Billy]

Billy,

Looking at your Excel page the First Resistance cluster for GDX is 18 is it not ? (You mentioned 10 above).

Trev

Trev, you are correct. When I told you that I had eyesight problems!.
I will edit now the chart and text of the initial post.
Thank you,
Billy

[adam ali]

Billy, great call on today's action. Would the YPP on the SPY be a logical place for this rally to stop today?

[Billy]

Billy, great call on today's action. Would the YPP on the SPY be a logical place for this rally to stop today?

Yes, and a dangerous place to be long now, just below a strong cluster + the volatility stop and above a declining 5-day moving average.
Billy

[vfc10us]

Death crosses and golden crosses are pretty widely followed. I wonder if that's why they don't seem to be so effective anymore. Anyway, we might have successfully tested the neckline on this large monthly inverse H&S for the Nasdaq.