The 10-week moving average of the S&P 500 has fallen below the 40-week moving average for the 42nd time since 1950.
Here’s the chart:
Let's break down what the chart shows:
The black line is the S&P 500 index price.
The blue line is the 10-week moving average of the S&P 500 index price.
The red line is the 40-week moving average of the S&P 500 index price.
The gray lines highlight when the 10-week moving average crosses below the 40-week moving average - Also known as a Death Cross.
The table showcases the forward returns of the S&P 500 following a Death Cross.
The Takeaway: The trend is your friend until it bends, and the S&P 500 has been in an uptrend for the past 115 weeks.
But that changed last week when the S&P 500 experienced a Death Cross, which adds to the evidence in favor of Bears.
But what exactly is a Death Cross?
A Death Cross is a technical indicator that occurs when a short-term moving average (10-week moving average) crosses below a long-term moving average (40-week moving average). This indicator is used to identify a shift in market trends from bullish to bearish.
Some people may place limited emphasis on the Death Cross pattern because it is often considered a lagging indicator. However, historical data suggests that if the short-term moving average remains below the long-term moving average, it could pose challenges for stocks moving forward.
I have done the math, and the results are bearish for the stock market… Take a look at the table above for more details.
On average, the S&P 500 has poor performance over the next 1 to 3 months.
Is this the kind of environment where we want to invest our capital? The impact on stocks in the near future will depend on how long it takes before we see a Golden Cross, which is the opposite of a Death Cross.
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