This chart says sell out of the FTSE 100 now

Jun 25, 2010, 12:52

David Stevenson

Posted byDavid Stevenson

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"Hide!" says Charlie Parker on Citywire. "The market is facing a double death cross".

That sounds much more than just nasty – maybe even fatal. So what's it all about?

This one-year chart of the FTSE 100 will reveal all…


Source: Bloomberg

The index is shown in white. The red line is the 200-day moving average – the average price over the last 200 trading sessions. But look at the orange line, which is the 50-day moving average.

Right now, highlighted by the yellow circle, the 50-day is just crossing the 200-day. And – this is the key – it's heading downwards through it.

For chartists, who look at price patterns not financial fundamentals, this is the pivotal indicator known as the "death cross".

As the name suggests, it's called a 'death cross' because when you see it, "bad things happen", says Parker. The last time we saw it was in December 2007. The UK market then started tumbling. And within 15 months, the FTSE had plunged almost 50%.

Will history repeat itself? Maybe not exactly. But certainly from a fundamental perspective, we wouldn't be surprised to see markets taking a real tumble from here, as we discussed in today's Money Morning.

But even more interesting is that the copper price is also going through the same 'death cross' agonies. This could be another bad sign for UK shares – with the FTSE 100 now full of mining stocks, the UK index and the copper price have moved closely together recently. So a copper crash could be a second major 'sell' signal for the FTSE.

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  • 1. Bronco Bullfrog

    (26 June 2010, 10:33AM)  Complain about this comment

    Death Cross?! What fancy name is that? Looks like a classic head & shoulders formation to me. Bwtfdik!

  • 2. Greg Miles

    (26 June 2010, 10:35AM)  Complain about this comment

    A glance at the Dow and S&P charts, especially if you use the 38 Day average instead of the 50 day moving average, confirms this. It has been a good predictor in the past.

  • 3. Jim

    (26 June 2010, 11:43AM)  Complain about this comment

    Considering the way BP, mining companes and bank shares have been so volatile I wouldn't be surprised that the lines would cross.

    Would it not be better to compare it with the FTSE250, perhaps the CAC and the DAX and other stock markets as well to see if there is any correlation?

  • 4. Alec the dalek

    (26 June 2010, 07:21PM)  Complain about this comment

    We are in uncharted waters. Chartists will be proved wrong. My prediction is that the Market will recover this coming week but we are certainly heading into a double dip recession.

  • 5. Mark

    (27 June 2010, 11:06AM)  Complain about this comment

    2007 was just one example, have there been others, has it always been followed by a crash.

  • 6. Alex

    (28 June 2010, 08:48AM)  Complain about this comment

    Wouldn't it be more sensible to cover your portfolio with a short spread bet, or buy a dated put on the FTSE as opposed to selling your carefully constructed portfolio because of what you've seen on the latest chart?

  • 7. Bob Roberts

    (28 June 2010, 02:11PM)  Complain about this comment

    So why a DOUBLE death cross - because copper is having a death cross also?

    So one in the FTSE and one in Copper?

    I keep reading about the coming crash.

  • 8. smlaing

    (28 June 2010, 10:39PM)  Complain about this comment

    5000 is massive support. we'll need a significant run of bad news for a downward trend from here.

  • 9. Bob Roberts

    (29 June 2010, 11:47AM)  Complain about this comment

    Gone below 5000 this morning... FTSE down 2% in morning trading...

  • 10. Howard

    (29 June 2010, 10:54PM)  Complain about this comment

    Sounds like traders return to the trading desks after the England's exit.

  • 11. Paul

    (30 June 2010, 12:36AM)  Complain about this comment

    Quick FTSE analysis of other times DC occured:

    The Dec 2007 DC was preceded by one in Sep 2007 but there followed an uptrend until Dec
    Early Aug 2004 DC occured but was quickly followed by 3 year bull run.
    Mid June 2002 DC was followed by downtrend for 9 months
    Early Nov 2000 DC was followed by downtrend for 10 months
    Need to go all the way back to May 1994 when DC was followed by short downtrend then sideways trend for 9 months

  • 12. GoldBlinger

    (01 July 2010, 10:32PM)  Complain about this comment

    I sold all my FTSE index funds at 5500...phew...
    Was worried at 5800, no very smug at 4800...
    Lordy lordy...
    Praise to Nasim Taleb and Hugh Hendry.
    GB

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