So many people have been talking about the ominous death cross! Oh no, I’m so scared. Rather than panic on media hype and hysteria, I’m here to run some numbers.
Some newer traders might get spooked and sell their entire portfolios, but I’m not one of them. You’d be led by some to believe that you should invest in ramen noodles and go hide in your basement. Well, men and women lie, but numbers don’t.
On Tuesday, in my live Master Class in the Master’s Club, I talked about how the death cross could actually put in a bottom in the market. There was just so much pessimism out there, and when everyone in the media is leaning one way, the market usually does the opposite. It turned out that the death cross was in fact, the bottom, and the market has bounced significantly since then.
Here was my reasoning from Tuesday, made live to subscribers. When some were panicking, I was guiding my students for a great trading opportunity:
What is a death cross? Its when the 50 day moving average crosses over the 200 day moving average. Does it mean a lot? Maybe sometimes. When we look at charts with the same parameters that everybody’s looking at, I believe they don’t work. Why? Because the market always front runs this move. This death cross is happening right now, but so what? The market has already been dead for the last 2.5 months. It just keeps going down. Is it about to go much further? I don’t know.
The entire world can see the death cross, I see it, so what? What does it mean? Now What? Are you going to sell all of your stocks?
Let’s go back and look at the history of death crosses:
The last time we saw a death cross was during COVID, and after that, we ran for 2 years non-stop! By the time the death cross occurred, we had already dropped from 330 to 210. The market got annihilated, and then the death cross happened. These things are lagging indicators. The worst already occurred. If you sold all your stock and got out of the market on the death cross, you were right for 3 days, then missed one of the biggest bull runs of our generation and 2 years of stocks moving higher.
Death crosses, should they be acknowledged, YES, they are important but don’t ever use one single Macro indicator to make all of your trading decisions.
I try to look at it from another perspective and think about sentiment. The sentiment at the Covid death cross was about the worst I’ve ever seen it. Everyone’s buying puts, everyone selling all their stock, no one wants to be in the market. At the time, who knew, this virus could kill everybody. Now that’s peak market pessimism. That’s the worst, that’s when you want to buy!
Rothschild said, “Buy when there’s blood in the streets!” There was nothing bloodier than buying at the bottom of COVID. Bill Ackman was on T.V crying ohh the market is never going to come back. Capitalism is dead blah blah blah about the same time, he’s probably secretly buying stock and capitalizing on the move higher!
If you just listen to people on T.V and listen to what they’re saying, I believe you’re done immediately and won’t make it as a trader! Get a brain, and learn to bet against market pessimism and optimism, although its easier to bet against pessimism in most cases I think, because it doesn’t usually last long. Optimism can go a lot further and be unbridled more than you’ll ever think!
Before that, the previous time we had a death cross was December of ’19. The market dropped 10% in just a few weeks in December, I was pretty long going into the new year and got smoked during this period. This time the death cross was a nice signal for about a week and a half. After that, we rallied all the way into COVID. Having seen that are we scared of today’s death cross? If you are, that’s okay, Uncle Jeff is here to help you! I don’t want you to be scared. We’re going to make good rational decisions.
If anything else, the death cross was a great bullish indicator. In the few months following the death, cross stocks went up significantly, and it was a great trading signal on the long side! In actual fact, the death cross signaled peak pessimism.
I am almost certain we are seeing the same thing right here! We’re seeing a death cross, and I think we’re seeing peak pessimism already priced into the market! You’ve got high volume, everything’s going down, everybody is throwing out their high growth tech stocks! Everybody’s liquidating portfolios, hedge funds are blowing up, this is all good stuff for new entries at great prices!
I want you to make good decisions and capitalize when all your friends are throwing in the towel and giving up! Are we going to rally higher? I don’t know but I sure think so!
Bottom Line
Following my live webinar, the market has been up 3 days in a row. It turns out the dreaded “Death Cross” was in fact, the buy signal for the market and tech stocks.
Rather than panic and listen to the “experts” on T.V and online, I did my own research and understood that the market was overextended, and this could be the capitulation bottom. I think for myself and let the statistics tell me what might be next. I’ve been doing this for a long time and understand when to fade overwhelming market sentiment. Subscribers heard it in Master’s Club first!
