I was asked in the All Star Options chat room this afternoon what I thought about this? My answer was that I don't put much stock in an indicator like this. In my selective memory, I feel like I've seen ominous headlines about "death crosses" in the past and they most amounted to much ado about nothing, ultimately.
But again, this might be selective memory.
Here's what's changing my mind... my guy Grant Hawkridge published an interesting piece about this topic today. In it, he says:
"Some people may place limited emphasis on the Death Cross pattern because it is often considered a lagging indicator. However, historical data suggests that if the short-term moving average remains below the long-term moving average, it could pose challenges for stocks moving forward.
I have done the math, and the results are bearish for the stock market…
On average, the S&P 500 has poor performance over the next 1 to 3 months.
Is this the kind of environment where we want to invest our capital? The impact on stocks in the near future will depend on how long it takes before we see a Golden Cross, which is the opposite of a Death Cross."
Grant supports this opinion with data that he shares in the post.
