It isn’t there yet, but stock-market bears and nervous bulls are keeping watch as the Dow Jones Industrial Average nears a so-called death cross.
“The cyclically- sensitive Dow is having the hardest time of late — and is at serious risk now of experiencing the uber-bearish ‘Death Cross’…,” strategist David Rosenberg, president of Rosenberg Research, said in a Monday note.
A death cross occurs when the 50-day moving average, viewed by technicians as a proxy for an asset’s short-term trend, falls below the 200-day moving average, a proxy for the longer-term trend (see chart below).
Rosenberg Research
As previously noted by MarketWatch’s Tomi Kilgore, some technicians argue that death crosses actually signal buying opportunities during bull markets, as they have at times appeared right around market bottoms. Others say it’s not a true death cross unless the 200-day moving average is declining when the 50-day moving average crosses below it. The 200-day average, presently near 33,805, is roughly where it was at the beginning of October.
Of course, technical patterns need to be confirmed to send a signal. But the move is “[v]ery much worth watching as the 50-day moving average line is just 0.5% away from the 200-day trend line” after Friday’s close, Rosenberg wrote.
The Dow
DJIA
was bouncing firmly to the upside on Monday, up more than 500 points, or 1.6%. But it remains down 1.6% for October and has lost 0.6% for the year to date. The S&P 500
SPX
on Friday joined the Nasdaq Composite
COMP
in correction territory, having retreated more than 10% from their 2023 highs.
The Dow’s most recent death cross occurred on March 8, 2022. A month later the Dow was up 6.4%, while a year later it had gained 0.5%, according to Dow Jones Market Data.
The Dow has seen 19 death crosses since 2000, according to DJMD. The Jan. 3, 2008, death cross saw the blue-chip gauge fall 30.8% over the next 12 months. The March 23, 2020, death cross, however, was followed by a 74.4% rally over the next year.
The median one-month return for the Dow after suffering a death cross has been negative 1.1%, with the industrials rising just 47.8% of the time. Over 12 months, the median return is 6.92%, with a positive performance 76.2% of the time.
Read the full article here