There’s a death cross forming in the currency market, but according to one top technician it could actually mean good things for equities.
“The chart in question is the U.S. dollar index, the DXY,” Rich Ross said Wednesday on CNBC’s “Trading Nation.” The ominous death cross pattern describes when the 50-day moving average crosses below the 200-day moving average on a chart. The structure is widely recognized as a bearish indication of a reversal in trend. “It’s important to recognize why [the] death cross [in the dollar] is bad for one chart but potentially very good for several others.”
Looking at a chart of the DXY, Ross noted a descending triangle that has formed for the better part of this year. “This is a bearish reversal formation which occurs at the tail end of a very strong trend,” he said. The dollar index saw a torrid run in 2014, rallying 12 percent only to cool off in 2015.
But it’s the recently formed death cross that has him convinced the run in the dollar may have come to an end. “We’re seeing the 50-day moving average cross below the 200-day moving average for the first time since July 2014,” said Evercore ISI’s head of technical analysis. Coincidentally, he added, July 2014 marked the top for crude oil.
“My contention is a bearish cross is bad for the dollar index, but the flip side to that is higher prices for commodities and by extension we can expect emerging markets to move higher as well.” Many emerging markets have suffered from the surging dollar and subsequent fall in commodities.
“To bring it back home, a weaker dollar and strong commodities can be bullish for the S&P 500 by extension,” Ross said.