“Death Cross” is not the most pleasant phrase for an investor. But some experts believe, it's a good time to buy stocks.
What does a cross look like?
From the beginning of 2022 – from its maximum – the S index&P 500 fell by 11%. BUT 14 March 50-day moving average fell below the 200-day. Traders consider such a figure a bear sign and call it the "cross of death".
A simple moving average is the arithmetic mean of a price over a period of time.. For example, for the latest 50 or 200 days. The average is calculated every day, therefore it is called sliding.
If the average is moving in 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 the asset has been falling or not growing as fast lately, like before.
What the statistics say
"The Cross of Death" is a terrible name, but history shows, that it's not so bad. S&P 500 drew this figure 53 Times. In two cases out of three, already through 12 The index recovered and was 6% higher, than before the "cross".
But there are cases, when the index fell sharply after the "death cross". This usually happened before the recession of the economy.. So, in November 1929, traders saw a "cross", and the following year S&P 500 fell by 24%. In December 2007, the index also drew a "cross", and later fell on 42%.
What an investor should do
Any moving average is a lagging indicator. Crossing the sliding indicates that, that the asset has already fallen. And not necessarily., that the fall will continue in the future.
So, in the last four cases out of six S&P 500 drew the "cross of death" near the local minimum. That's why it's not worth selling all U.S. stocks urgently now..
"Sometimes it's helpful to understand the strength or weakness of a market at a particular point in time.. But trying to trade on it is at least difficult and often inefficient.", He said. specialist analytical firm Fundstrat.
But for long-term investors, a terrible 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 the expert Susquehanna.
But investing everything in US stocks is also not worth it.. Possible, that in the next year or two there will be a recession in the world economy - a decline in business activity, which will affect investors.
For the past two years, the leading central banks — FED and the ECB pursued a loose monetary policy. Such policies and broken supply chains have led to high inflation in America., Europe and other regions. The situation in Ukraine has only exacerbated the rise in commodity prices..
To beat the record for 40 years of price increase in the USA, The Fed will be forced to raise interest rates. And this will reduce the desire of companies to take out new loans for development and the desire of consumers to spend more.. As a result, the profits of companies may fall, and investors will begin to get rid of high-risk assets.
The Fed may announce the first rate hike in three years at a meeting today, 16 Martha.
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