Countdown To The 34th S&P 500 Death Cross - Update 12/4/2018

|
Includes: BXUB, BXUC, DMRL, EPS, IVV, PPLC, RSP, RVRS, RYARX, SDS, SFLA, SH, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU-OLD, SPXV, SPY, SSO, UPRO, USMC, VFINX, VOO
by: Georg Vrba
Summary

The 34th occurrence (since 1950) of the 50-day moving average of the S&P 500 crossing its 200-day moving average to the downside is imminent.

Updated with the 12/3/2018 close of 2790.37, and even with this improving S&P 500 the Death Cross is inevitable and will occur early December.

The looming Death Cross could indicate the potential for a major selloff.

In our article, The S&P 500 Death Cross - Time To Panic?, we analyzed the markets after a Death Cross, that is when the 50-day moving average of the S&P 500 crosses its 200-day moving average. We now face the 34th Death Cross in the first or second week of December.

After the recent, 11/23/2018, low of 2632.56 we warned on Sunday 11/25 of a looming Death Cross. Since then the S&P 500 gained 6% to close at 2790.37 on 12/3 and Bloomberg prematurely lifted the warning with their article S&P 500 Blasts Above Key Support Levels, Escapes Death Cross. Unfortunately, Bloomberg is mistaken.

Even with the achieved gains and with the S&P 500 trading above both the 50 and 200 day moving averages, the Death Cross remains inevitable! It will occur before December 13, 2018. We base this prediction on the strength of following two simulations, the results shown in the figure below.

  1. The future simulated S&P 500 remains at the 12/3 close of 2,780.37 for the coming days. Then, the Death Cross is on Friday, December 7.
  2. The future simulated S&P 500 gains 1.008% on its previous day to close at 2,985 on December 13. The Death Cross would then be avoided with the difference of 50-day and 200-day moving average equal to zero on that day, a highly unlikely scenario.

We repeat the concluding paragraph of our article The S&P 500 Death Cross - Time To Panic?

Asset Allocation after a Death Cross

Based on past history of the performance of the S&P 500, there is no need to panic. A Death Cross does not always result in major market losses, as can be seen from the analysis. However, it would appear that one should avoid being invested in the stock market during the first two months after a DC, as there were many losses during this period, whereas the historic maximum gain was only about 13% in this period after any of the 32 DCs.

It is prudent for asset allocation to be in accordance with prevailing market conditions. More aggressive investments can be used during up-market periods, while more conservative investments are applicable during down-market periods. It would appear that good market timing models, such as our Composite Market Timer could provide guidance after Death Cross events.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.