Is Death cross the time to sell and exit the market or a short term buying opportunity in disguise? Read investment analysis done by Aranca and choose your best bet.

1. Death Cross Alert: Time to Sell?
What is a Death Cross?
A Death Cross occurs when a security’s short-term moving average falls below its long-term moving
average. All eyes are on the 50-day and 200-day Moving Averages (MA) for this.
A Death Cross is indicative of a market moving towards a bearish zone.
The signal has more significance if the formation is supported by higher volumes. Furthermore, post a
Death Cross, the long-term moving average acts as the new resistance in rising markets.
Decoding Historical Trends?
Historical trends suggest that the market turns bearish for at least 50–70 days after a Death Cross’
formation (accompanied by higher volumes) before changing its direction. However, if the market does
not witness a Golden Cross (the short-term moving average breaks above the long-term moving average)
even after 70–90 days, without any reduction in the gap between the 50-day and 200-day MAs, a crash

2. may appear inevitable. This pattern was observed in 2000 and 2008, as evident from the chart. During
these instances, the 50-day MA remained lower than the 200-day MA for more than 300 days.
Why Should it Concern You?
A Death Cross pattern occurred twice over the last 90 days in the NASDAQ Composite Index (its first time
since late 2011) along with high trading volumes.
After the first Death Cross’ formation, the bearish period lasted for more than 50 days.
The latest incident occurred in mid-January 2016.
These trends indicate a bearish market for another 30–40 days.
Views on Other Stock Exchanges Across the Globe
Similar trends have been observed in several markets across the globe.
While most markets are showcasing a bearish trend, some markets such as the DAX (Germany) and the
Nikkei 225 (Japan) have shrugged it off.
The following table lists markets that gave strong signals after Death Cross formations:
Index Death Cross
Occurrence
Gap Between 50-
day MA and
200-day MA*
Death Cross
Accompanied by
Higher Trading
Volumes
Comment

3. TASI (Saudi
Arabia)
Mid-August
2015
Increasing Accompanied by
higher trading
volumes.
Bear market
in the near
term.
NIFTY
(India)
Mid-June 2015 Increasing Mixed signals. Bear market
in the near
term.
DAX
(Germany)
Early
September
2015
Decreasing Accompanied by
higher trading
volumes.
End of the
bear market.
Nikkei
(Japan)
Early October
2015
Decreasing Accompanied by
higher trading
volumes.
End of the
bear market.
Hang Seng
(Hong Kong)
End of August
2015
Increasing Not accompanied by
higher trading
volumes.
Bear market
in the near
term.
Sources: Bloomberg, Reuter Eikon, Aranca Research
* Data as of February 02, 2016
Is it Time to Sell?
A sale can be deferred if the market starts rising over the next 50–60 days.
If a Death Cross continues beyond the next 50–60 days however it may be advisable — based on historical
trends — to exit the market.
But There is Hope!
If the market starts rising and forms a Golden Cross in the next 50–60 days, it may be a short-term buying
opportunity.

4. About Aranca:
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