I fear death as much as the next guy, but death has been one of the themes of late in the chart patterns of some of our target shorts. For the better part of 2014 market participants were keenly focused on the relative under-performance of small caps relative to their larger brethren. In September some market technicians started to highlight the potential for the IWM’s 50 day moving average to cross bellow the etf’s 200 day moving average, a clear sign of waning momentum which could likely lead to lower prices. This occurrence is ominously called the “Death Cross” (good recent discussion here from SeeItMarket.com.) The cross lead to the subsequent 10% drop in the IWM over the coming weeks, which is not insignificant when talking about a decline in an index of 2000 stocks:
In early November, I used the prior example to help make the case for a short trade in GOOGL, as it too was nearing an impending “Death Cross” after a period of under-performance to its peers and the broad market, from Nov 4th;
The inability of GOOGL to keep pace with the broad market is the key, with the stock sitting flat on the year and 9% off of the 52 week highs that were made more than 8 months ago.
GOOGL too has now declined 10% from its own “Death Cross” and we have since closed the bearish trade (read here):
And then there was the Double Death that we had been tracking in TSLA since early December, the Triangle of Death coupled with the impending Death Cross (read here), from Dec 29th:
A quick look at TSLA now, it is almost right back to the 200 day moving average, the spot in which I highlighted on Fast Money on Dec 16th as an ideal entry for a short trade. I also mentioned the impending “Death Cross”, the 50 day moving average (purple below) crossing below the 200 day moving average (yellow below)….. The technicals are setting up, for a powerful move one way or the other. Either finally breaking the downtrend and establishing a new base above $240, or you know what comes next:
Today TSLA shares are down almost 7% attempting to round-trip the entire one year move:
You get the point, the “Death Cross” worked for these, but it is important to note this is just one INPUT. That input worked in fairly well trafficked situations, it was almost too obvious. Like everything in the market, there will always be others where it doesn’t work at all. That would be too easy.
There are others of late with Death Cross patterns, CTXS, F, JNPR, NFLX, SSYS to name a few… we will be keeping tabs on these.