The S&P 500 drew a "cross of death". What does this mean and what do the statist

The S&P 500 drew a "cross of death". What does this mean and what do the statist

"Death cross" is not the most pleasant phrase for an investor. But some experts believe that this is a good time to buy shares.

What does a cross look like?

Since the beginning of 2022 — from its high — the S&P 500 index has fallen by 11%. And on March 14, the 50-day moving average fell below the 200-day moving average. Traders consider such a figure to be a bearish sign and call it the “cross of death”.

A simple moving average is the arithmetic average of the price over a period of time. For example, for the last 50 or 200 days. The average is calculated every day, so it is called the moving average.

If the moving average for a short period - 50 days - fell below the average for a long period - 200 days, this indicates a change in the bullish trend. This means that recently the asset has not been falling or growing as fast as before.

What should an investor do

Any moving average is a lagging indicator. The intersection of the moving averages indicates that the asset has already fallen. And it is not necessary that the decline will continue in the future.

So, in the last four cases out of six, the S&P 500 drew a “death cross” near a local minimum. That's why it's not a good idea to sell all US stocks right now.

“Sometimes it is useful to understand the strength or weakness of the market at a particular point in time. But trying to trade on it is at least difficult and often inefficient, ”said a specialist at the Fundstrat analytical firm.

But for long-term investors, a scary figure can be a good signal to buy. “If you have a long horizon, buying after the death cross is almost always a good buy,” said Susquehanna.

But investing everything in US stocks is also not worth it. It is possible that in the next year or two the world economy will experience a recession - a downturn in business activity that will affect investors.