WTF is the Kiss of Death Signal that Often Predicts a Recession?
On September 30th the S&P 500 closed below 3600. This is a level that, according to most technical analysts, had to hold. Now a warning signal, ominously titled The Kiss of Death, is ringing.
But there is more to the bearish signal than just a number. Losing 3600 plunged the index below the 21 EMA (exponential moving average), a technical indicator used by traders for its Goldilocks like accuracy.
The Standard and Poors Index is the most accurate index for general market sentiment. Technical stock market theory states that a series of lower lows will more than likely produce a continued downtrend.
So, WTF is the Kiss of Death Signal?
In an already bearish environment, the Kiss of Death Signal is a failure by the bulls to reverse the downward trend. The signal only looks at the 21 EMA, as it is considered to be the most current indicator.
The signal requires these three things:
- A monthly close below the 21 EMA after an all-time high
- A bounce back to regain the 21 EMA
- A failure to recapture the 21 EMA and drop below the previous low (continuing trend of lower highs and lower lows)
The Kiss of Death Signal has preceded most long term bear markets and recessions. It appeared in the Dotcom Bubble, the 2008 Crisis, and the Great Depression.
But it isn’t always accurate. While the Kiss of Death signalled further lows for equities in the above-mentioned bear markets, it can sometimes be a false signal.
In 2015, the 21 EMA was lost momentarily before regaining the trend line and exploding above it. This also happened in 2019 and in the 2020 Covid Crash.
WTF Happens Next?
Well, if history is an indicator, a face-melting rally.
It isn’t a given of course, but in the crashes of 2000, 2001, and 2008, monster green candles followed. If you’re looking to take profits (if you’re still in the black), mitigate losses, or avoid buying in an uptrend, it is important to know this.
There are also two predictable periods for potential gains coming ahead. First, The Halloween Effect, which is a rally in stocks after Halloween that can last all the way to the end of the year (The Santa Claus Rally). While these rallies aren’t always consistent, they offer the hope of a small 2022 recovery.
What about Crypto?
The correlation between equities and cryptocurrency has never been higher. So if a global stock market recession is on the horizon, you better bet your bottom dollar that cryptocurrency will follow suit. Many of the young (and worthless) altcoins won’t survive.
That being said, October is historically one of Bitcoin’s best months and although the gains are small, Bitcoin et al. are actually trending upwards. California is moving forward in allowing vital records to be stored on the blockchain, and crypto darling Polygon is up 10.6% week over week.
It feels like it’s been said ad nauseam for the last year, but the next couple of months are truly crucial for financial markets.
New to trading? Try crypto trading bots or copy trading
