The S&P 500 experienced a 'death cross,' a technical indicator where the 50-day moving average falls below the 200-day moving average. This event, relatively rare in the index's history (occurring only 50 times since 1928), often signals short-term market weakness. Bank of America's analysis of historical data following similar occurrences suggests near-term declines, but with eventual recovery.
Data shows that within 20 days of a death cross, the S&P 500 has historically declined in just over half of the instances. However, within 40 days, this trend reverses; the index is up more often than down, with an average gain. By 80 days, the average gain is significantly higher. When the 200-day moving average is also declining, the short-term decline is more pronounced, but still gives way to an eventual positive return.
Bank of America's technical strategist suggests considering buying opportunities on a dip or retest of April lows. The analysis highlights short-term volatility but emphasizes the likelihood of longer-term market recovery following the 'death cross' pattern.
The S & P 500 's technical levels made a dreaded and somewhat rare crisscross for chart watchers. If history repeats itself, data from Bank of America shows more short-term weakness ahead before a rebound. The broad index's 50-day moving average fell below its 200-day moving average on April 14, a price chart pattern known as the "death cross." This is a concerning signal that indicates the S & P 500 is losing momentum in the near-term and can fall even further. A death cross marks the latest milestone for the S & P 500, which has seen highly volatile trading since President Donald Trump announced his plans for broad and steep tariffs on April 2. While Trump later delayed many of those levies, the broad index is still down more than 6% from that day. This cross pattern has only happened 50 times in the S & P 500's history going back to 1928. An analysis of historical data compiled by Bank of America suggests that the benchmark can be in for more pain in the near-term, but that will give way to a bounce. Looking 20 days out from the average death cross' formation, the S & P 500 has slid 0.5%. The broad index was down in just over half of those instances. But fast-forward to 40 days from the cross: The S & P 500 is down in less than half of occurrences and has notched an average gain of 0.9%. By 80 days out, the S & P 500 was still higher in more cases than it was down from when it first made the pattern. On average, the index climbed 2.6% from when the two moving averages first overlapped. In this case, there's another factor at play that has historically amplified the performance: the 200-day moving average was declining as well. To track historical instances when the index was declining, Bank of America compared where the moving average sat against how it performed during the five days prior. Of these even rarer instances, the S & P 500 was down about every two out of even three times when looking 20 days ahead. Average declines were steeper at 1.6%. But by 40 days from the cross, the S & P 500 was up more than half the time with an average gain of 1%. At two months out, the index rose 67% of the time and the typical return shot up to 3.5%. "This suggests we should consider buying a dip/retest of lows in April," Paul Ciana, the firm's technical strategist, wrote in a Wednesday note to clients.
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