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“Death Transition” shows more short-term losses for US stocks since recovery

NEW YORK (Reuters) – There may be more losses for US stocks in the short term, according to an indicator…

NEW YORK (Reuters) – There may be more losses for US stocks in the short term, according to an indicator of an inappropriate unfortunate name: the death cross.

PHILOTOOTH: A trader is watching price surveillance when working on the floor of the New York Stock Exchange in New York, New York, USA, December 4, 201

8. REUTERS / Brendan McDermid

A chart pattern traced by technical analysts and other marketers , a cross-sectional shape when an index’s moving moving average of daily closing rates falls below its long-term moving averaging, as both mean decreases. The 50 and 200 day moving averages are usually used.

On Friday, the S & P 500 Index .SPX, the US stock market benchmark, was the main objective of the Small Business Shareholding, Russell 2000, to form a death cross.

It happened that S & P tumbled another 2.3 percent for its third straight daily decline. It drove its 50-day moving average 3.7 points during the declining 200-day moving average, resulting in the first death transition since January 2016.

S & P is now down 10.16 percent from its record close to 20 September. [19659004] Historically, the death cross has indicated a further fall for the index after the pattern has arisen.

For example, a mortar crossed on the Russell 2000 chart on November 14 after it had fallen 13.7 percent from its high level at the end of August. It has fallen another 3.6 percent over the three weeks ago.

Before Friday, a death penalty had occurred on S & P 500 just 12 times since 1928, according to a survey by Paul Hickey, co-founder of Bespoke Investment Group in Harrison, New York.

After 10 of these cases, the index has been lower one month later. On average, the S & P 500 had fallen 1.9 percent a month after a death cross was formed, with a median one month decline of 3.1 percent.

Six months later, however, the index is usually higher, with an average profit of 7.5 percent and a media increase of 9.8 percent.

Like all technical indicators, it has its limits, and not all major market sales are signaled in advance by a death penalty. The bear market 2007-2009 affected the financial crisis, which saw that S & P lost more than half of its value in 17 months, without the death penalty ever being formed.

Since then there have been four S & P death transitions.

Some market technicians, such as Brian LaRose at ICAP Technical Analysis in Jersey City, New Jersey, see the death transition as a longer-term indicator than a leader, reflecting only acceleration of losses in a market already in an established decline.

“It will not happen until the market has already broken down, and we’ve already seen it happen,” said Ken Polcari, head of ButcherJoseph Asset Management in New York. “We are looking for more uneven price measures, but I do not think we are looking for a crash.”

Report of April Joyner; Editing Dan Burns and Nick Zieminski

Our Standards: Thomson Reuters Trust Principles.

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