As the major market indexes have fallen of late, one after another has experienced what’s known as a “Death Cross”, a technical market pattern that occurs when an index’s 50-day moving average crosses below its 200-day moving average. Its dreadful name would suggest that every investor in the world should run for the hills whenever one occurs—but is that the prudent thing to do? Mark Hulbert, financial columnist at Marketwatch, decided to take a look. Going back to 1970, Hulbert found that the Dow Jones Industrial Average has endured 34 “Death Crosses”, followed eventually by the opposite, the so-called “Golden Cross” when the 50-day moving average crosses back above the 200-day moving average. His study showed that on average, the market has actually performed somewhat better following Death Crosses than it has following Golden Crosses over the following month, quarter and 6 month periods! As he notes, this is exactly the opposite of what market folklore would lead us to believe.
The Kiss of Death
| December 10, 2018