R.I.P. bull market.
With markets under pressure on fears of an escalating U.S. trade war with China, the S&P 500 (^GSPC) is on the precipice of entering the ‘death cross’ zone for the first time since the summer of 2016. The often very bearish chart formation could happen as soon as this Friday if markets stay highly volatile.
The ‘death cross’ is a closely watched technical measure that shows waning short-term momentum for a market or particular stock. When it happens — signaled by the 50-day moving average crossing the 200-day moving average — it suggests a muted appetite by investors to step in and buy on the dip (see chart below). The death cross reared its ugly head in 2000 (before the Dot com bust) and 2008 (prior to the Great Recession) before the bruising bear markets that ensued.
It’s not a completely reliable indicator, however, as the market went into rebound nicely after entering a death cross zone in the summer of 2016.
Investors are likely right for staying extra cautious at the moment. Concerns over Federal Reserve interest policy and bubbling global trade tensions is putting the pressure on Wall Street analysts to slash their profit forecasts. In turn, that’s yet another factor — a more fundamental one than trading headlines — that will probably continue to weigh on the markets.
“Consensus 2019 earnings estimates still look high to us at just under 9% and may very well need to dip closer to our 6% view before market participants can believe in “meeting or beating” revised expectations,” veteran Citigroup strategist Tobias Levkovitch warns.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
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