Last week, the German DAX stock market index showed a Death Cross. This is the event where the 50-day moving average dives under the 200-day moving average. The death cross is one of the oldest sell-signals in technical stock market analysis. Other trend following signals, however, did not generate a sell-signal. Why is that?
The answer to this question lays in the fact that different trend following signals seek a different balance between timeliness and accuracy. Good trend signals are designed for a specific investing purpose.
Some investors like to take a cautious, traditional, approach. They prefer to be rather safe than sorry. When they perceive that it becomes more risky to be invested in the stock market, they prefer to sell and stay in cash.