"Death Cross" still alive and well in most world markets

Risk assets finally had a green surge this week: best week in a year. It's about time. Short-term, risk was looking heavily oversold. A good week has bred a fresh spate of bullish calls that this cyclical contraction in stocks may have now run its course. As we review the charts this morning though there is no evidence yet to support this view. Here is a quick update of the following widely held assets and indices:
TSX: down 2.33% and down 6.58% from 2010 high.
SP500: down 1.42% ytd and –13.38 from 2010 high.
EFA Index: down 8.61% ytd and –13.40 from 2010 high.
Nasdaq Comp: down –3.32% ytd and 15.32% from 2010 high.
Oil: down –4.70% ytd and –14.13% from 2010 high.
Cdn Materials: flat YTD and down –8% from 2010 high.
Gold: up 8.23% ytd (in C$)
Banks: down 1.63% ytd
U$: up 11.09%
TLT(20 year note): up 12.78%
Cdn. Dividend index: down –1.32% ytd
Shanghai comp: down –24.6% ytd
Japan: down –1.04% ytd and –11.04 from 2010 high.
Australia: down –9.81% ytd and 19% from 2010 high.
Natural gas: down -40.88 ytd and -45% from 2010 high.
The beauty of weekly charts (when used properly) is the way they can reduce hyperbole and noise to the simplicity of an objective count. Importantly the “death cross” technical indicator (where the 50 day moving average breaks below the 200 day) which flashed an ominous warning for world markets three weeks ago is still fully in tact all over our charts. The last time this rare signal flashed warning was in December 2007 and it did not reverse itself until after the market carnage was complete in the late spring of 2009. In our own indicators which focus on the 10 and 40 week moving averages markets are officially in contraction mode. It will take more than a couple of green weeks to reverse this trend. In the meantime, caution remains the rational course.

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3 Responses to "Death Cross" still alive and well in most world markets

  1. Anonymous says:

    I was leaning toward a double dip but then this piece reminded me the yield curve was still positive. http://blogs.reuters.com/felix-salmon/2010/07/08/zirp-and-the-double-dip/

  2. Anonymous says:

    Why does the economic news seem so different from your reality?
    http://jessescrossroadscafe.blogspot.com/2010/07/why-does-economic-news-seem-to-be-so.html

  3. Anonymous says:

    Larry,
    You should ask Lakshman Achuthan from ECRI to answer the question: can the business cycle go into contraction under positive yield curve or not? I think it can.
    The current downturn is pervasive, pronounced and waiting for the third P to come in: prolonged. A few more weeks I think.
    This week's ECRI WLI growth rate is at -8.3%. Last time was on July 24 2009 this same measure, ergo if recession ended last year in mid summer with the same or similarly bad number then we (they)
    going into it once again right now. D. Rosenberg could answer about this probability.
    Anyway, even if they miss on technicality alone, I suspect the 0% real GDP growth rate will come in the 4th. quarter.

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