One of the more feared technical indicators in markets is the “death cross”, in which the 50-day moving average of a stock or index falls below its 200-day moving average. Death crosses are scary since the shorter term moving average falling below the longer term average signals bearish momentum in the market.
At the end of August, the S&P 500 had a death cross.
Fortunately, it turns out that this might not be as bad an omen as it looks (or sounds).
Bank of America Merrill Lynch’s Stephen Suttmeier took a look at the historical performance of the S&P 500 after death crosses and the reverse situation of a “golden cross” in which the 50-day average crosses above the 200-day average. While 6-month and one-year returns after a death cross were lower than the overall average, and much lower than after a golden cross, average returns were still positive. After three months, average death cross returns were actually a little higher than the overall average:
- Business Insider/Andy Kiersz, data from BAML