Does This S&P Death Cross Spell Disaster?

A death cross occurred on the S&P 500 Index (SPX) yesterday, as its 200-day moving average breached its 400-day trendline

by Alex Eppstein

Published on Feb 25, 2016 at 12:10 PM
Updated on Jun 24, 2020 at 10:16 AM

While it was easy to miss, the S&P 500 Index's (SPX) 200-day moving average crossed below its 400-day trendline yesterday. It was the first time this death cross has occurred since April 2012, and the 17th time dating back to 1950.

As you might infer from the expression death cross, the assumption is this signal has bearish implications. To help us quantify returns following this type of bearish cross, I enlisted the help of Schaeffer's Senior Quantitative Analyst Rocky White, who put together the three charts below. The data indicates that the SPX historically underperforms following similar death crosses, versus both golden cross (200-day crossing above the 400-day) and anytime returns:

160225spx1

As you can see, the death cross doesn't impact the SPX much in the first month -- in fact, post-signal returns are slightly better than anytime returns (0.8% vs. 0.7%). Going out further, however, the story is quite different. At six months after the death cross, the S&P is down 0.1% on average -- compared to an average anytime gain of 4.3% and a 7.6% rally after a golden cross.

White also provided a chart documenting each instance in which the S&P 500's 200-day moving average breached its 400-day trendline. As mentioned previously, this last happened in April 2012, and returns were pretty dismal over the next few months. Almost exactly four years before that, a similar bearish cross occurred during the financial crisis, and the returns were even worse -- with the SPX losing almost 39% in the subsequent year. Let's hope the S&P can buck the bearish trend this time around.

160225spx2


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