The Dow Jones Industrial Average made its first ‘death cross’ since March 2022 on Monday, in what some have described as the latest ominous development for equities as the market looks to extend its November rebound rally.
This time around, two consecutive sessions in the green weren’t enough to keep the Dow out of death cross territory, as the market’s latest three-month losing streak weighed on the blue-chip index’s 50-day moving average, while gains from earlier this year helped lift the 200-day moving average.
The Dow DJIA closed at 34,337.87 on Monday, up 54.77 points, or 0.2%, according to FactSet data.
A death cross occurs when the 50-day moving average, considered by market technicians as a proxy for an asset’s short-term trend, falls below the 200-day moving average, a proxy for the longer-term trend.
Analysts had warned of a looming death cross for the Dow as recently as the end of last month, with David Rosenberg, president of Rosenberg Research, describing the prospect as “uber bearish” for equities.
Although typically interpreted as a bearish signal, some technicians argue that death crosses actually signal buying opportunities during bull markets, as they have sometimes appeared right around market bottoms, as MarketWatch’s Tomi Kilgore previously noted. Others say that it’s not a true death cross unless the 200-day moving average declines as the 50-day moving average crosses below it, which hasn’t been the case here.
Going back to 2000, the Dow was up an average of 8.1% one year after a death cross and 4.6% three months after, according to Dow Jones Market Data.
The index was higher three months later after eight of the last ten instances, which occurred between March 2022 and the second half of 2005.
Although the Dow closed higher, both the S&P 500 SPX and the Nasdaq Composite COMP closed lower on Monday as investors awaited the latest batch of US inflation data, due out at 8.30am Eastern on Tuesday.
The Dow is up 3.6% year to date, but it’s down nearly 20% from its closing low in late September 2022, the lowest level reached during last year’s sell-off, and its lowest overall close since November 2020.
