In early September I wrote a post that examined prior instances where the S&P 500 Index moving averages triggered the death cross signal. In the article I concluded the death cross generally has triggered near market bottoms versus signalling further market weakness. The death cross is where the 50 day moving average crosses the 200 day moving average from above.
The most recent death cross was triggered on August 27th and as the below chart shows, this was only two days after the s&p 500 Index bottomed. Subsequent to the death cross, the S&P 500 index is up 4.4% and appears to be replaying those "V-shaped" recoveries investors are becoming accustomed to of late. In hindsight, had investors simply bought stocks when the market was down over 10%, they obviously would have enjoyed a more significant bounce off the bottom. The significance of the double digit decline in this cycle is the fact the market had not experienced one for nearly four years until this August.
|From The Blog of HORAN Capital Advisors|
For investors then, some technical indicators are more predictive of future stock or index movements than others. In the case of the Death Cross, it is an interesting conversation topic; however, it appears not to be a reliable sell indicator and in fact may be a signal to buy.