Stock Market in Tatters: Looming Death Cross for the S&P 500

eraoflight alternative newsThe S&P 500 index is set to join the ranks of market benchmarks forming that dreaded Wall Street chart pattern: the death cross. A death cross is setting up in the S&P 500 SPX, -1.63% , with the 50-day moving average at 2,763.56, on the brink of slipping below the 200-day moving average of 2,762.08, according to FactSet data.

A death cross is what chart watchers refer to as the point where the 50-day — a short-term trend tracker — crosses below the 200-day, which is used to define the longer-term trend. Many believe the cross marks the point where a shorter-term decline graduates to a longer-term downtrend.

Given the S&P 500’s nearly 2% nose dive on Thursday — collapsing in tandem with the Dow Jones Industrial Average DJIA, -1.84% and the Nasdaq CompositeCOMP, -0.84% — a breach of the large-cap index’s short-term trend line beneath the 200-day seems likely to take hold as early as Friday.

If so, it would mark the first time the 50-day MA has fallen below the 200-day for the S&P 500 since March 22, 2016, according to Dow Jones Market Data.

The move for the benchmark comes amid a series of bearish patterns that have cropped up in equities and fixed-income markets, highlighting growing concerns about the durability of a bull run in stocks that has lasted about a decade as the economy’s vital signs have also been strong, in a long-running if measured rebound from the 2007-09 financial crisis. Indeed, more than half of the S&P 500’s components have produced death crosses.

Thursday’s slump — coming after bond and stock markets were closed during a day of mourning following the death of the 41st U.S. president, George H.W. Bush — has been attributed to further signs that a U.S.-China trade spat may not be resolved soon, even after a detente was described as having been forged over the weekend on the sidelines of the G-20 summit in Argentina, offering investors a reason to be sanguine.

Canadian authorities arrested Huawei Technologies Co.’s chief financial officer, reportedly at the U.S.’s behest, fanning fears of another escalation in tensions between the world’s two largest economies, with Chinese officials demanding the release of Meng Wanzhou, who was arrested on Dec. 1.

A number of strategists have pointed out that a recent run of death crosses appearing in the market — a death cross formed in the small-cap Russel 2000 index RUT, -1.16% last month — can be used as tools for those looking to re-enter beleaguered assets.

“As I mentioned in the previous article about the Death Cross forming in the Nasdaq Composite, the apparition of this infrequent omen does not necessarily mean the end of the world. In fact, it has occurred in the S&P 500 four times since the start of the market cycle that began in March of 2009,” wrote Nathan Edwards, financial planner and wealth manager at IMG Management, in a recent blog.

But as MarketWatch’s Tomi Kilgore writes, the ominous formation also is a sign of how viciously equity markets have unraveled in the past several weeks. More than half of the S&P 500’s 11 sectors have seen death crosses, and a chunk of the index’s constituents are in bear markets, having declined at least 20% from a recent peak. Both the S&P 500 and the Nasdaq are in correction, usually defined as a 10% drop from a peak.

With those unsightly technical developments at play, crude-oil futuresCLF9, -2.33% have been plunging, and bond yields, which draw safety investment are tumbling — fast. The 10-year Treasury note TMUBMUSD10Y, -1.50% yielded 2.85% at last check, down from 2.92% on Tuesday. Bond prices rise as yields fall.

Moreover, a narrowing differential between the benchmark 10-year Treasury and the 2-year Treasury note TMUBMUSD02Y, -2.30% , known as the yield curve, is flattening and threatens to invert, a feature of the fixed-income market that has presaged every recession since 1975.

On their face, developments in bonds and oil suggest that investors are doubtful about the enduring health of the global economy in years to come.

To be sure, this may be a perfect opportunity for long-term investors, but, presently, it may also appear that all is not right with this bull market. Or, as Michael Antonelli, equity sales trader at R.W. Baird & Co., told the Wall Street Journal on Thursday: “Everything feels out of control right now.”


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