Feared Death Cross Can Be Heralding Good Days If History Repeats Itself

In a chart filled with Equity Bears, the Death Cross becomes one of many investors' worst fears as it poses an ominous market crash. The term itself sounds like a bad horror movie as Brett Arends of Market Watch puts it.     

In a statement published by NBC-2 Arends said, "Some on Wall Street believe that it's a precursor to a real-life horror show, starring your stock portfolio as Hapless Victim #1." He also said "the recent death cross concerns "pure voodoo."

However, some people believe that the death cross is nothing more but a mindless exercise in chart watching. According to Bloomberg Business, while the death cross is supposed to be an ominous technical pattern, it can also signal rallies. As their strategist Sejul Gokal writes "The dreaded "death cross" in the Standard & Poor's 500 Index may well herald better days if history is any guide."

This bizarre chat pattern is formed when a 50-day moving average crosses the 200-day moving average. This is also considered bearish by analysts. As defined by the experts, Death Cross indicates an intermediate-term downward trend.

According to Will Deener from The Dallas Morning News, technical analysts monitor the Death Cross "because they believe it indicates that a current market sell-off is developing into a long-term downward trend. The Dow descended into its death cross on Aug. 11, while it happened for the S&P 500 on Aug. 28."

"It is scary except for the fact that significant research has shown virtually no correlation between market performance and the death cross," said Deener.

What's happening in the market these days is very far from what happened during the Black Monday Crash of 1987. That's when the market really crashed. Right now, the markets are going through a series of corrections, as experts put it.

The index is on its way to consolidating in this month of September, that is, if patterns from 2011 will unfold once again. What will happen is there will be an essential one new and final low, but it will still remain above key support zone at the 1,821/1,814 level, and will finally restore to its secular bull trend. To add strength to that prediction is the fact that the MACD, or the S&P 500's daily Moving-Average Convergence-Divergence, is now near the same levels that made the stock-market hit bottom in 2011 and the three years market rallies that followed.