S&P 500 (SPX) Forms a Dreaded ‘Death Cross’
It’s happened. The S&P 500 (SPX) has formed a technical ‘Death Cross’ pattern. Not since 2015 has such a bearish technical event occurred (in the eyes of technical analysts and traders).
What is a Death Cross?
A ‘Death Cross’ is a chart pattern usually defined by technical analysis as the crossing of a shorter-term moving average below a longer-term moving average. Typically, the most common moving averages used in this pattern are the 50-day and 200-day moving averages.
The Death Cross rarely occurs on major equity indexes like the S&P 500. In fact, the index has formed only a small handful of such patterns in the past decade. As a result, it’s one of the most widely watched technical formations that exists, and it’s also among the patterns considered most bearish by technical analysts.
The S&P 500
The S&P 500 saw a Death Cross first begin forming on Wednesday and Thursday of this past week. The pattern was then confirmed with a completed cross on Friday. To make matters worse, the index has been volatile, heavily pressured, and trading in and out of correction for the past few days. A correction is defined as a pullback of 10% or more below the most recent peak.
But before we start panicking and predicting doomsday scenarios based on this pattern alone, one thing should be kept in mind. Every S&P 500 Death Cross in the past decade after the 2008 financial crisis has resolved within a reasonable time into significantly higher prices. The only caveat is that it can sometimes take several months to do so.
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Past performance is not indicative of future results. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.
Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Technical Analyst at The Technicals
As a momentum stock trader, Luke focuses mostly on strong market moves. Luke has been trading the markets since the early 2000s, but still gets excited by big movers. Whether a surging large-cap tech company or meteoric penny stock, Luke tracks and trades winners. A technical analysis purist, Luke authors many of our Top Stocks & ETFs reports. Contact Luke