Watch Out for Holiday Headline Risk
This week’s market action has been nothing short of disorienting.
Investors were looking for the averages to build on their comeback gains as stocks gapped higher early Tuesday morning. Instead, the tape slowly ticked lower into the closing bell. Despite a quick afternoon comeback, the Dow and S&P finished in the red, while the Nasdaq posted a small gain.
Headline risk is once again testing our patience this week. Any attempted market comeback is at the mercy of the dual threat of trade war negotiations and government shutdown threats.
Case in point: Futures are pushing higher this morning after Trump commented that he would intervene in the arrest of Huawei’s CFO if it would help net a trade deal with China, MarketWatch reports.
Will stocks remain at the mercy of a dysfunctional government? Or will cooler heads prevail?
Even if stock survive a crazy news cycle this week, can a “death cross” finally driven a stake through the heart of the bull market?
My colleague Mike Burnick just posed this important question as the S&P 500 faces a dreaded death cross.
For the uninitiated, a death cross occurs when the 50-day moving average moves below the 200-day moving average. The takeaway is that the shorter-term and longer-term trends are potentially syncing up for a bigger move lower.
It’s also important to note that death crosses did precede two of the most severe bear markets in recent memory: 2000 and again in 2008.
“But death crosses have occurred numerous times near important stock market bottoms, often preceding big gains ahead,” Mike explains. “Historically there have been 33 death crosses in the S&P 500 since 1950. Last week was number 34. Only four of these prior incidents resulted in bear market losses of greater than 20% within the first two years. These occurred in 1969, 1973, 2000 and 2008.”
It gets better. There have also been 22 death crosses (out of 33) when the S&P 500 went on to post gains over the next six–12 months. Mike notes that the median gain after ALL death crosses, winners and losers combined, was 8.6% one year later.
Maybe it’s not the death crosses that should worry us after all…
[Editor’s note: Mike tends to avoid the spotlight. But what he reveals right here could add as much as $383,515 to your retirement…starting as early as tomorrow. Click here now to find out why.]
Speaking of death crosses, small-caps aren’t getting up off the mat.
While most investors remained glued to tech shares or the 2,600 line in the sand for the S&P 500, small-cap stocks are quietly leading the market lower.
The small-cap Russell 2000 broke down last week — and it hasn’t found any relief since plunging to new lows. Tuesday was the fifth straight day it finished in the red.
One more little detail: You might recall that the Russell was the first of the averages to post a death cross almost one month ago. The last time we witnessed a death cross in the Russell was all the way back in late 2015, which precluded the broad market’s big washout by a few months (that final move lower marked the end of the stealth bear market in early 2016).
Is this the washout we’ve been waiting for this time around? We’ll have to wait and see.