To be a valid signal, the death cross must be reinforced by high trading volume, which further indicates that the security or index is bearish and should be sold. The Dow, the Standard & Poor’s 500 index and the Nasdaq each crashed into “correction territory” in August, their first one-day, 10 percent decline since 2011. The S&P 500, probably the best barometer for the market, lost $2.1 trillion in just six days. Now, $2.1 trillion may not seem like a lot of money, but it’s equal to the combined market value of Google, Exxon Mobil, Kellogg Co., Apple, The Hershey Co., Berkshire Hathaway, Wal-Mart and General Mills. So far, it seems that the market has recovered. Today, the death cross represents an important upside resistance level for an index or a security in a rising market.
Don’t panic. Don’t sell, and stay the course. In my opinion and in the opinion of others wiser than I (readers say their numbers are legion), the damage has already occurred. The market has seen only 10 death crosses since 1969, and in the 30 trading days after a cross, the averages in eight of the 10 instances were down in the neighborhood of 1.4 percent. However, three months after a cross occurred, the indexes had actually gained — an average of 3.1 percent. And six months after a cross, the average index gain was 8.2 percent. The trick is to catch the market before a death cross occurs, but I don’t know a single sane soul who could tell me when that’s going to happen. Many believed that it would happen, but the operative adverb is “when.”
NRG Yield (NYLD-$13.90), a subsidiary of NRG Energy, is an interesting power company. NYLD sells energy that it produces from its portfolio of company-owned and operated conventional, solar and thermal energy facilities. NYLD’s plants collectively produce more than 3,825 megawatts of power, which is sold — under long-term contract agreements — to hospitals, universities, commercial businesses and governmental facilities in multiple locations. Don’t sell this stock! NYLD, yielding 6.2 percent, may be a sweet growth and income issue, and there are only 63 million shares outstanding. Revenues for 2016 are expected to come in at $1.01 billion, up from $850 million this year, while earnings could double, to $1.17 a share. And the 84-cent dividend could be raised to 95 cents next year, providing an attractive 6.6 percent yield based upon today’s price. According to Barclays, RBC Capital Markets, Deutsche Bank and UBS, NYLD could trade in the mid-$20s by early 2016. And an analyst I know at Neuberger Berman, a fund that owns 4 million shares, told me he recently bought 600 shares of NYLD for his dad.
Malcolm Berko addresses questions about stocks. P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.
