Death cross

Do you want to know why the $1300 level in gold has been so important to defend?

The chart below tells us what gold has to average over the next n days for a "death cross" to occur in n days.

(A death cross is an ominous trading signal that occurs when the 50-day moving average falls below the 200-day)

It will occur soon if the average price of gold stays at or below $1300 (see dotted red horizontal line). Put another way, if gold can't clear and hold $1300 within the next few trading weeks, a death cross will occur.

If the price should fall more abruptly--say, averaging ~$1250 over the next 6 trading days--then a death cross would occur next Friday.

The last two death crosses have been awful for gold. Both times, they corresponded to $100 drops in price. Last year, the April 2013 historical collapse followed.

Trader Dan Norcini made the good point when the "golden cross" occurred recently that gold immediately fell below these MAs, and thus he predicted it wouldn't mean much as a trading signal. So far he's been right. Right now gold is having trouble staying above the 200-day MA, and has been effectively capped by the 50-day

An emerging pattern that has accompanied death crosses has been (1) a sudden drop in price that causes the death cross to happen, then (2), a "calm before the storm," where gold flirts with the 50-day MA again before the other shoe drops. So, I still think a big move is coming in one direction or another, probably down, but I'm going to remain patient, looking for more signs.

On that note, I liked this interview of Bill Fleckenstein on KWN (who's usually very good).
For myself I go day upon day, upon day, upon day without doing a single trade.  I have my metals positions.  I tried a couple of shorts, but nothing is very successful there.  You can’t do anything in the bond market.  You can’t short them, and you can’t own them.  The major stock market you really can’t short, and you sure don’t want to own most stocks.  So there’s not a hell of a lot to do if you see the world as I do or as I think any sane person must.”
Speaking of KWN, we tend to mock it here at STFU, but after some discussion with my new Swedish friend "David P. out of Europe," (now a KWN regular apparently) I must concede that it really is quite an invaluable site. But it lends itself to mockery by looking like a propaganda site, and being run like one too (Whither Trader Dan? Mish Shedlock? The "always popular" Jim Rickards? To the Gulag, I fear. Without even the courtesy of an explanation). Moreover, KWN deserves to be mocked, because unlike GATA, who put their biases and perspectives up front and offer only evidence for the reader to judge for himself, KWN constantly passes off maniacal permabullish trading advice and blatant hucksterism as ... news. 

Can Fleckenstein last with answers like these??
Eric King:  “Bill, I respect that you are on the sidelines dealing with this insanity right now, and you are not the only professional who has commented on that, but at what point will you become more active again?”
Fleckenstein:  “Well, if the metals market would show some ‘giddyup’ you could press positions and trade them, but so far that hasn’t happened. 


Eric Original said...

Still no comments? Gee Whiz, guys.

OK, how about a discussion about whether a "Death Cross", or a "Golden Cross", actually have a useful track record? Thoughts?

Personally, I favor moving average based systems, but feel like waiting for the 50 to cross the 200 is a bit late. Probably better off with something that reacts a bit sooner.

Talk amongst yourselves...

GM Jenkins said...

Good to see you in these here parts, Eric O. I agree I thought this post would've generated more buzz, seeing as I have adduced dispositive empirical evidence in favor of the hypothesis that powerful forces are keeping gold below $1300 to engender a death cross and send gold plummeting in the next few weeks.

The death cross in gold didn't have a great track record until the 2011 bear market started. My sense is that death crosses in general mark the end of bull rallies in bear cycles pretty well (and vice versa for golden crosses).

Btw your 2014 prediction here that gold would have a boring rangebound year is five-twelfths through looking good.

S Procheimian said...

Matt Levine of Bloomberg discusses the Plunkett Plunge

S Roche said...

and Kid Dynamite is quick to use this development to support his thesis:

S Roche said...

I'd never noticed the family resemblance before...

Louis Cypher said...

You missed your calling GM :)

Louis Cypher said...

Ooops! meant to post the comment in the Sunday pre game above.