A death cross occurs when the 50-day moving average (DMA), seen by technicians as a proxy for the intermediate-term trend, slips below the 200-DMA, a proxy for the long-term trend. Technical analysts view the occurrence as marking a spot where a shorter-term correction could turn into a longer-term downtrend.
The S&P 500's 50-DMA ended on Monday at about 5,748, while the 200-DMA ended at nearly 5,754. While the benchmark stock index finished the day up 0.8%, the session marked the first fall for the intermediate-term measure below the long-term trend line since February 1, 2023.
This follows a death cross occurrence for the Nasdaq Composite (.IXIC) on Wednesday.
"It's a very ominous sounding signal in equity markets, but when you actually back-test the death cross throughout history, you're better off a buyer than a seller on the death cross," said Adam Turnquist, chief technical strategist for LPL Financial.
Looking back over roughly 50 years, the S&P 500 has seen 24 death crosses. In 54% of the cases, the death cross occurred after the point of the index's maximum intraday decline, a Reuters analysis of LSEG data showed, meaning the worst of the slide had already happened before the death cross.
In 46% of the cases, the selloff worsened, with the benchmark index logging an average decline from the point of the death cross of 19%.
There have been instances of severe losses following the signal. After death crosses in 1981, 2000 and 2007, the ultimate declines of the ensuing selloffs were 21%, 45% and 55%, respectively.
The S&P 500 has fallen 52% of the time 20 days after a death cross occurred, with an average loss of 0.5%, Bank of America technical strategist Paul Ciana said in a note analyzing nearly 100 years of data.
But 30 days after the signal, the index was higher 60% of the time, with an average gain of 0.8%, Ciana said in the note on Monday.
The severity of the selloff that the market has already endured - the S&P 500 came within about 1% of confirming a 20% correction this month - and the highs hit by various measures of bearish sentiment, including the Cboe Volatility Index (.VIX), hint that a selling crescendo might be over, analysts said.
"We had major signs of capitulation over the last week in the broader market," Turnquist said.
"To me, looking at the charts, this is more 2018, 2020 kind of potential V-shaped recovery than something more drawn out," he said.
