Don't Fear the 'Death Cross' in This Fast-Moving Market
There's some buzz around about the "death cross" and whether its appearance signals a bear market, but Cantor Fitzgerald technical analyst Marc Pado says pay it no mind.
The S&P 500 , he says, formed the death cross Aug. 12 when the 50-day moving average crossed below the 200-day moving average.
"It used to be an indicator because the markets would slowly break down ... They wouldn't move so rapidly [as they are now]. We wouldn't see 10 to 15 percent declines in a week," he said.
However, with last week's wild volatility, "you achieved the goal for a downside objective instantly," he said. That goal was 1150.
Pado says there's a lesson to be learned from the death cross that formed in July 2010, when stocks did not enter a bear market, but instead were setting up for another rally that started at the end of the summer.
The 50-day moving average of 1111.66 crossed beneath the 200-day moving average of 1111.77 on July 2. The market closed that day at 1022. "It then crossed back above on October 22," when the S&P was at 1183, he said.
Investors would have missed that rally had they heeded the warning of the death cross. "You would have missed a 160-point move in the S&P because you saw this vampire cross!" said Pado.
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