The US stock market is in a “death cross” pattern, which sounds pretty scary
News | 08.12.2018
In all the squiggly charts that traders see every day, recognizable patterns occasionally emerge. Some investors take these coincidences very seriously. One of the most serious patterns of all is the “death cross,” in which a market’s short-term moving average drops below its long-term moving average (generally, the 50-day average crossing the 200-day average) as both are declining. This pattern signals further falls ahead, the theory goes.
At the end of the week, the S&P 500 index entered death cross territory. Run for your lives!
Or not. So-called technical analysis (assigning predictive power to chart patterns) is a bit of a sideshow in the financial world. The most recent death crosses before this week, in 2015 and 2016, didn’t portend anything particularly deadly for the market. More damningly, no death cross preceded the start of the last bear market in late 2007.
It’s wise to ignore these supposedly meaningful technical patterns—the Hammer, Rounding Bottom, and Gravestone Doji, among them—regardless of how evocative they might sound. There are plenty of reasons to worry about the recent wobbles in the stock market, none of which come from drawing an “X” on a chart and giving it a scary name.