You can not have missed the continuing wild swings and dramatic losses in the stock markets the last week and month. They only seem to be getting worse and even accelerating. Now the S&P 500 charts have started sounding dire alarm bells that more selling is on the way.
This pattern in question has been aptly and ominously named the “death cross.” With the last Friday plunge in the markets, this dreaded sign showed up on the S&P 500 charts. It means that the last 50 day price average fell below the 200 daily moving average. This warning sign of increasing negative momentum speaks of a potential reversal in the trend, per technical analysts. This chart shows the latest death cross for the index:
T3Live Partner Scott Redler explained the troubling phenomenon with:
“It just means you’re lower for longer, meaning there’s no real bounce, which is a sign of real selling… That’s why people don’t like the death cross. It’s almost confirming what could be a change in trend to the downside.”
The S&P 500 broke down through 10 percent off of its all-time high previously in 2018. This made it an official correction. As of Friday’s bloodbath, the index registered negative for the entire year.
Meanwhile, the Russell 2000 index already revealed its death cross pattern back on November 13. It has dropped over four percent from that point. The Nasdaq Composite faced its own death cross back on November 27th. It dropped over 1.5 percent from that point.
It is not only the death cross that is warning of an impending stock market meltdown though. Some analysts feel that the bear market has already arrived. Ed Clissold the Chief U.S. Market Strategist of Ned Davis Research warns:
“If you take this as a typical bear market, not associated with a recession, it’s going to take you down around 20 percent – maybe a little bit more. That’s what we need to be thinking about over the next several months.”
If this turns out to be true, the S&P 500 could see a total drop of around 588 points off of the historic high (from September 21st) of 2940.91.
Technicians like Clissold were expecting the bear market not to strike until 2019. He moved up the time table forecast because of the massive technical damage to the charts that resulted from the correction in October. Clissold is convinced that the next macro news event for the markets will be more discouraging still. He sees revisions on earnings coming down the pipeline now instead of next year. Clissold believes that the slow drip of bad news will overshadow markets for the next several months at least.
According to this timetable and prediction of a seven month bear market, the pain will continue until into the second quarter. It is only then that bottoming may commence. This of course assumes that no economic slowdown coincides with the stock market pull back.
Consumer confidence is a fragile thing at best. With investors and consumers already acting nervous over interest rates rising, earnings and the economy overall slowing down, and the ongoing trade tensions between China and the United States, it is impossible to say when the markets really will bottom.
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In case you need more analysts opinion on this matter, Bank of America Merrill Lynch’s Paul Ciana the technical strategist sees the most recent declines continuing on to 2019. This is only the latest indication that the long-feared next recession is in the cards.
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