The S&P 500 index completes a “death cross,” a bearish technical pattern that develops when the 50-DMA cuts below the 200-DMA. The move comes as the US stock market faces selling pressure on tariff news.
First time since February 1, 2023, where the intermediate-term trend line was below the long-term trend line, after a 0.8% increase in the benchmark index Monday. The Wednesday prior to that, a similar “death cross” hit the Nasdaq Composite.
Death Crosses: A Brief History
And, as dark a name as it is, the history of the debt cross implies it doesn’t always presage large drops in the market. S&P 500 worst intraday declines following a death cross “On average, S&P 500 worst intraday declines following a death cross happened only 54% of the time,” according to a Reuters analysis of LSEG data spanning roughly 50 years of S&P 500 data. It implies that, by the time that formation came to be, the bulk of the descent had obviously already occurred.
In the other half of the equation, 46% of the time, the selloff intensified after the death cross, with the S&P 500 ultimately falling an average of 19% more from the initial signal. Down 21% ultimate selloff post death cross 1981. Worst of loss from a death cross in history Down 45% ultimate selloff post death cross 2000 pic.
Using almost a century of data, Bank of America says the S&P 500 has dropped 52% of the time by an average of 0.5% within 20 days of a death cross. However, the index was higher on the same signal 30 days later, more than 1 out of every two occasions (60%), with an average increase of +0.8%!
Market Capitulation Signals
Recent market capitulation aside, analysts have been pointing to early signs of a fade in the selling pressure. The S&P 500 itself was even within 1% of confirming a 20% correction earlier in April. Confirmation of Selling Climax Broad-based Negative Sentiment: Several measures of bearish sentiment, including the Cboe Volatility Index (VIX), reflect broad-based negative sentiment.
Last week, people saw “strong signs of capitulation across the broader market,” LPL Financial chief technical strategist Adam Turnquist said. When looking at the charts, current market dynamics look a whole lot more like the “potential for 2018, 2020 kind of potential V-shaped recovery—than something more drawn out,” he said.
Analyst Interpretations
And that type of ”death cross” in the past has usually been a stronger buy than sell signal, Mr. Turnquist said. The death cross is a lagging indicator, so the pattern is viewed by both short- and long-term investors as a nudge to the “snap back” rally, not further losses, Piper Sandler Companies chief market technician Craig Johnson said. Three previous S&P 500 dying crosses have previously yielded mixed signals, relating to them as “signals of suspicion” in revealing their P&F (point and figure) potential. This could include the 200-day moving average at the close having not fallen for five consecutive trading days, which he said was a key measure to watch. With this key long-term average starting to curve downward, if this trend continues, it could indicate that stocks have further to move down, at least in the short term
Broader Market Context
The S&P 500 Golden Cross is celebrating its 16th Anniversary amid Tariff-Related Volatility—Wall Street vs. Main Street Twitter. Only last month, it looked like the tariffs on autos were a done deal until Trump hinted that they might not actually come to be, which cast some doubt into that narrative and moved the markets.
Earlier in April, the announcement of tariffs erased billions of dollars from major indices as furious swings rocked the market. However, it also demonstrates how easily the market can rebound on news specific to trade, which people have also seen subsequently.
Additional Insights
The death cross is a lagging signal-based TA tool. It is symptomatic of something that has already occurred, not one that is necessarily moving in a direction you can rely on. Moving Averages Pattern- This pattern is based on the relationship between a short-term moving average and a long-term moving average, with moving averages providing a way to smooth price data over some time in order to identify a trend.
