• Skip to main content
  • Skip to primary sidebar
  • Markets
  • Trade Ideas
  • Reflections
  • Links
  • Trading Program
    • Spec Model Trading Manual
    • Spec Model Trades
    • Spec Model Positions
  • Income Model
    • Income Model Trading Manual
    • Income Model Trades
    • Income Model Positions
  • Watch List
    • Watch List: Spec Long Plays
    • Watch List: Spec Short Plays
    • Watch List: Income Plays
  • About
    • Privacy Policy
    • Terms of Service
    • Terms of Participation

Zach Scheidt

Helping families build wealth so they can focus on what really matters

Beware the Death Cross Charts!

January 6, 2022 at 8:35 am by Zach Scheidt

death cross charts

Over the holidays a friend asked me if I paid attention to stock charts.

I could tell by the tone of his voice that he didn’t think they were worth much. So I managed to sidestep the question and pretty soon we changed the subject.

But between you and I, my views on stock charts have come a long way from when I started my investment career at a hedge fund in the financial district of Atlanta.

This week as I start building out trading and investment positions for 2022, I’ve got my eye on a three ominous stock charts. All three of these stocks are forming (or have formed) “death cross charts.”

I want to explain why that matters, how to avoid the risk in play, and how you can even profit from these unique chart patterns.

Why Stock Charts “Work”

Many fundamental investors despise chart patterns and people like me who watch them.

I’ve come across plenty of these characters throughout the years, and I understand the way they think. Here’s their argument:

All stocks will ultimately be worth the value of profits that the companies generate. So there’s no point in watching which way a stock is trading in any given day, year or month.

From an academic perspective, they’ve got a point. And if I was going to hold a stock forever, it certainly wouldn’t be worth taking much of my time studying where traders have been buying or selling over the past year.

But think about this…

The market is made up of buyers and sellers — individuals who are influenced by greed and fear just like you and me. They have bills to pay, bonuses to earn, retirements to save for and dreams to chase. And all of those factors influence where and when people will buy or sell shares of stock.

Historical chart patterns plot when and at what price people have previously bought or sold. And if you pay attention to these levels, you can more accurately predict when human instincts are going to kick in and trigger new buy or sell decisions.

Anyway, that’s a long-winded way of saying that I think there are some great reasons to look at chart patterns. In fact, I’ve created an entire watch list product to keep track of the most actionable stock charts on my radar.

An Ominous “Death Cross Chart” Spells Trouble

One of the most dangerous chart patterns I’ve been seeing lately is the infamous “death cross chart.”

A “death cross” forms on a stock chart when one short-term moving average crosses below a longer-term moving average.

Here’s an example…

Death cross chart for SQ

In late November, shares of Block Inc. (SQ) had already begun to break down. That’s when the stock’s 50-day average (the green line) crossed below the stock’s 200-day average (the blue line).

This “death cross” indicated the short-term trend for SQ had officially broken down. And it signaled active traders to get out of the stock (and to possibly start building bearish positions to profit from a fall).

Sure enough, SQ continued lower and could still have much farther to fall. After all, the stock is trading at a high valuation compared to earnings. And many short-term speculative traders are now caught in losing positions (and will be sellers for weeks to come).

Now there’s nothing “magic” about death cross charts — or any other technical indicator for that matter.

But since other traders pay attention to stock charts and specific patterns, setups like this can become self fulfilling. As traders see a death cross chart forming, they’re more inclined to sell. And that can lead to more pressure on the stock driving shares even lower.

Considering the weakness that’s creeping into certain areas of the market, I wanted to point out a few death cross charts to help you avoid potential trouble.

Moderna Inc. (MRNA) – After a Spectacular Run

Shares of Moderna Inc. (MRNA) made investors a lot of money following the company’s successful rollout of its coronavirus vaccine. In fact, the beta version of my Speculative Trading Program locked in some big gains on MRNA calls when it surged higher last fall.

But now vaccinations are reaching critical mass. Therapeutics are helping to minimize health risks. And investors are starting to look at the rest of MRNA’s business.

And while the company certainly runs a legitimate business, profits are expected to decline significantly over the next couple of years.

Two years ago, MRNA was just a twenty-dollar stock. And while the company’s vaccine platform is certainly more valuable now, questions about the company’s long-term value remain.

Perhaps more importantly, many investors who bought shares during the height of the crisis are now trapped in a losing position. If you’ve ever been in that situation. you know that any time your stock starts to bounce, there’s a temptation to sell.

MRNA’s death cross chart is just now forming as the stock breaks a key support level near $220. This breakdown could lead to a more sustained selloff as investors panic and bail out of their positions.

If you’re a conservative investor, you may want to exit this position even if you plan to hold long-term. You’re likely to get a much better entry point in a few weeks.

And if you’re a more speculative trader, this death cross sets up a good opportunity to short the stock or buy put contracts. Based on the current action, it looks like the odds favor a much lower price for MRNA this year.

Will Meme Stock AMC Hit Single Digits?

While Moderna at least has a legitimate business, shares of AMC Entertainment (AMC) shot higher on nothing but a well-orchestrated market manipulation tactic.

Individual traders bought with the intention of squeezing short sellers. And for a while, they succeeded.

But stocks of unprofitable companies can’t stay elevated forever. And AMC’s day of reckoning appears to be here.

The stock has started giving back last year’s gains. And as panicked investors start to bail out of positions, the negative momentum could pick up quickly.

Full disclosure, now that AMC has begun trading lower, I’ve taken a bearish position in the Speculative Trading Program. Buying in-the-money puts on AMC gives me the ability to profit from a decline, while at the same time muting my risk if the trade winds up being premature and AMC rebounds.

For now, AMC’s breakdown along with the death cross chart make this a high-conviction trade to kick off the year.

These are just two of the death cross charts that are evolving in today’s market. But if you look back through charts of popular stocks that have fallen in recent months, you’ll see this pattern showed up for many of them prior to the biggest part of their decline.

To be a successful investor and trader in today’s market, it helps to have as many tools in your belt as possible. Understanding the fundamental dynamics for every business is helpful. And watching the charts for key patterns like the death cross can also help you make smart decisions.

Here’s to protecting your wealth in 2022!

(Trade procedure: 5 minutes after this notification posts, I will enter the trade on my brokerage platform. Once filled I will edit this post to include execution prices.)

Please note: I am placing these trades in my own account. And while I notify the group of all trades 5 minutes before I place my own personal trades, this creates a conflict of interest. Please review all disclosures and agreements included with your subscription packet.

Filed Under: Public, Trade Ideas Tagged With: $AMC, $MRNA, Chart patterns, death cross

Primary Sidebar

Get your FREE copy of my watch list




You’ll also receive my (almost) daily market insights — you can cancel at any time.

stock market is bad

The Stock Market is So Bad, It’s GREAT!

I’m kicking myself for not being better prepared. The stock market is so bad, it’s primed for a big-time rally!

gold rally

Time for Gold to Rally!

The gold rally has been held back by two important factors. But now that these two challenges are going away, gold could surge!

share buybacks

Terrible Timing to Stop Share Buybacks

A bear market is a terrible time to stop share buybacks. But some companies are using this opportunity to build shareholder value!

official bear market

What I’m Watching as an Official Bear Market Looms

Stocks are just a couple percentage points away from official bear market territory. Here’s how I’m positioned heading into next week.

Hated homebuilder stocks

I’m Bullish on Hated Homebuilder Stocks

Shares of hated homebuilder stocks are lower this year. But this area offers tremendous value that could lead to gains this summer!

stock market new season

Can the Stock Market Shift to a New Season?

After seven straight weeks of losses, the stock market may be shifting to a new season. Here’s why I’m optimistic about the week ahead.

good stocks fall

Why Good Stocks Fall

Good stocks fall when investors need cash (and have no options left). That’s good news and points to a rebound in sight!

value stocks outperform

April was Brutal — But There Are Still Winning Stocks

Stocks fell in April — booking the worst month for the Nasdaq since the dot-com crisis. But despite the carnage value stocks outperformed

Stock Market Indicator

This Stock Market Indicator Points to a Bounce

There’s a lot of fear in today’s market. But despite the selling, one stock market indicator is signaling a bounce!

Three reasons to buy Meta

Three Reasons to Buy Meta Ahead of Earnings

Facebook’s parent Meta Platforms is scheduled to release earnings this week. Here are three reasons I chose to buy Meta ahead of the report.

Investors are buying stock insurance

Investors Buying “Stock Insurance” – Here’s How to Profit

The price for “stock insurance” — or put contracts that protect investors’ wealth — is rising. Here’s how to use that to your advantage!

Barbell Approach

For Stronger Investment Returns, Use THIS Barbell

Splitting your investment account into a “safe” portion and more “aggressive” positions can help to manage risk and improve returns.

This Market is FULL of Great Investment Plays

There is no shortage of opportunity in today’s market. But you have to know where to look for the best investment plays.

Quarterly Trading Update

Quarterly Trading Update — March 2022

Now that the first quarter is over, I wanted to share an update on how our trading models performed.

gold investors

Three Options for Gold Investors

As precious metal prices rise gold investors have quite a few options. Here are three ways to profit from higher gold and silver.

DISCLAIMER: Stocks and options trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the stocks and options markets. Don't trade with money you can't afford to lose.

This is neither a solicitation nor an offer to Buy/Sell stocks or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this page. The past performance of any trading system or methodology is not necessarily indicative of future results.

All trades, patterns, charts, systems, etc., discussed on this page are for illustrative purposes only and not to be construed as specific advisory recommendations. Information contained on this site or in any correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

Arete Publishing, LLC · Copyright © 2022 · All Rights Reserved
Privacy Policy · Terms of Service · Terms of Participation · Log in