The 34th S&P 500 Death Cross, Today Or Tomorrow: Update 12/6/2018

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Includes: DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWM, RYARX, RYRSX, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, UWM, VFINX, VOO, VTWO, VV
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.

With the S&P 500 closing at 2,700.07 on 12/4/2018, the Death Cross is expected tomorrow on Friday, December 7.

The arrest of Huawei's chief financial officer and the geopolitical uncertainty arising from it could drive the S&P 500 below 2,602 for an earlier Death Cross today.

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.

We warned since Sunday 11/25 of a looming Death Cross in early December. After Tuesday's sell-off, and the S&P 500 losing 3.25% on the day, and now at the time of writing, futures are pointing downward after the arrest of Huawei's chief financial officer on December 1, but only announced some hours ago. The Death Cross will be avoided today if the S&P 500 closes above 2,602; otherwise, it will happen tomorrow on Friday, December 7.

The below graphs show a simulation with:

  1. The future simulated S&P 500 remains at the 12/4 close of 2,700.07 for the coming days. Then, the Death Cross is on Friday, December 7.
  2. The future simulated S&P 500 gains 1.027% on its previous day to close at 3,003 on December 11. 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.