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Stocks resumed their April slide Wednesday morning as investors worried about the impact of a U.S.-China trade war on the global economy.
In a more troubling sign, the S&P 500 remains in a technical scenario that traders refer to as a “death cross”–where a key shorter-term moving average moves below the level of a long-term moving average.
The 50-day moving average for the S&P 500 is now hovering around 5722, compared to a 200-day moving average of about 5755. That’s considered bad news for traders since it indicates bearish momentum is gaining steam.
However, some argue the S&P 500’s death cross may not be the beginning of another long leg down for the market. Yes, stocks will likely remain volatile. But Adam Turnquist, chief technical strategist for LPL Financial, said in a report Tuesday the outcome may not be as ominous as it sounds.
He added that the S&P 500 has generated a median gain of 10.5% in the 12 months after a death cross for the 36 times one has occurred dating back to 1950.
Of course, it’s not a perfect indicator of a bottom. Turnquist noted death crosses also happened in October 2000, December 2007, December 2018, and March 2022–before bigger market sell-offs and eventual capitulation.
But there may be another technical sign flashing a green light for equity investors.
Bank of America Securities technical strategist Paul Ciana pointed out in a report Wednesday that last week’s stunning rally following President Donald Trump’s announcement of a 90-day reciprocal tariff reprieve for all nations but China is a positive sign that shouldn’t be ignored.
Ciana noted that more than 90% of the stocks and volume on the New York Stock Exchange finished in the green on April 9. He said that “since 2006, there were 88 such impulsive up days.”
After those previous 90% or more up days on the NYSE, BofA said that the S&P 500 was up 78% to 82% of the time in the next 40 to 80 days and by an average of 4.3% to 6.8%.
So as bad as the death cross may sound for investors, there could be new life for the stock market in the next few months if history repeats itself.
