What a 'Death Cross' Could Mean for the Dow Jones Industrial Average

The DJIA's 50-day and 200-day moving averages are on the cusp of a 'death cross'

Aug 11, 2015 at 12:51 PM
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The Dow Jones Industrial Average (DJIA) is swimming in red ink, on pace for its eighth down day in nine sessions. In fact, the index has already dropped roughly 1.7% in August, and sits 2.4% lower year-to-date. What's more, the blue-chip barometer is in danger of a "death cross" -- when its 50-day and 200-day trendlines bearishly converge. So, what can history tell us about these signals?

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Over the past 50 years, the Dow has suffered 34 death crosses, per data from Schaeffer's Senior Quantitative Analyst Rocky White. Following such a technical move, the DJIA has averaged a one-week return of 0.2% -- slightly better than the index's one-week anytime return. Beyond that, though, the Dow has been weaker than normal following a death cross, averaging a six-month return of 2.6%, compared to an anytime return of 3.7%.

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The last death cross was about this time four years ago, on Aug. 24, 2011. Prior to that, it was early July, 2010. In fact, six of the past 10 death crosses have occurred in July or August. 

The last two death crosses are particularly unique, when looking at the Dow's long-term reaction. In mid-2010, the DJIA gained 16.7% six months after a death cross -- the best of the past 10. Following the cross in August 2011, the blue-chip barometer gained 14.7% in the subsequent six months.

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