Significance of Death cross and Golden cross

A Death cross is said to form when the 50 DMA crosses the 200 DMA from ABOVE. This is supposed to signify extreme bearishness. The reverse is when the 50 DMA crosses the 200 DMA from BELOW. This is called the Golden cross and is supposed to be a bullish sign.

My personal take on this: ignore this as it has no practical significance. It is however excellent for creating content (fillers) for the blue TV channels (and blogs like this) and for analysts to appear intelligent (me included).




Explanation: like almost all indicators, this works only half the time. To make matters worse, the crossover happens when the key indices have already moved 10-15%. Obviously it is useless in rangebound markets and excellent in trending markets. However, the signals come too late to have any trading utility.

Example charts: I am using line charts for NF from 1995. The moving averages are blue (50 DMA) and red (200 DMA)  while the NF chart is light grey for ease of viewing.

The first chart 1994-2000 has a lot of whipsaws.

The period 2001-2008 has been a very strongly trending bull market

The period 2008-2013 has produced mixed results with  two small whipsaws.

This is a blowup chart... as can be seen the signal has come AFTER the markets have already lost 10%!

And this is the latest chart as of 16-JUN-2015... death cross has come after NF has lost more than 10%.