Death Cross "Grand Slam" May be Head-fake says one Market Researcher

Last week, the Nasdaq Composite produced a “death cross” chart pattern, which occurs when the 50-day moving average crosses below the 200-day moving average. It may signal moving from a short-term correction into a longer-term decline. The Nasdaq is the fourth major index to create a death cross since the Dow Jones Industrial Average did so on August 11, followed by the S&P 500 and the Russell 2000 Index. Several other broader-market indexes have also displayed death crosses recently.

This is the first time all four indexes have displayed the pattern since August 24, 2011 and the thirteenth time since 1979. Joseph Goepfert, president of Sundial Capital Research, says that historical data “don’t support the assumption” that “this is a sell signal for stocks.” He points out that “[a]fter a month, returns [in the S&P 500] improved significantly.” Goepfert says there is little statistically significant correlation between performance in the stock market and the death cross grand slam. “It’s as useful to know what to ignore as what not to,” he noted, concluding: “this is one to ignore.”