The most exciting name in technical analysis is coming to the S&P 500: a “Death Cross.”
In a note on Thursday, analysts at Bespoke Investment Group write, “If you follow financial media or are active on Twitter, be prepared to hear about the ‘Death Cross’ that the S&P 500 is set to experience most likely by [Friday].”
A “Death Cross” occurs when an index or stock’s 50-day moving average falls below its 200-day moving average and is often seen as a reversal in the prevailing long-term trend for a security.
In its analysis, Bespoke found that the S&P 500 has only experienced a “Death Cross” 10 times, and while returns over the next month have only been positive 20% of the time — with average returns over the month following a “Death Cross” coming out to -1.38% — over the next 6 months, things look pretty good.
90% of the time, returns for the S&P 500 have been positive 6 months after a death cross happened, with the average return clocking in at 8.23%, more than double the average 6-month return for the index (3.47%).
“The only time the index has been lower in the six months following a true ‘Death Cross’ was following the October 2000 period when the Dot Com bubble burst,” Bespoke adds.
As for what the future of the market may hold, Bespoke thinks the volatile conditions we’ve seen will persist.
“There are likely to be more sharp moves lower in the near term, so be prepared for them,” Bespoke writes, adding, “If you’re looking to exit positions, do it on upswings instead of downswings, and keep the market’s long-term trajectory upward in the back of your head at all times.”
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