by Evelyn Cheng
Don’t get too excited about the recent recovery in stocks. The formation of so-called death crosses in major indices suggests the trend is still lower.
The Shanghai Composite, the epicenter of the plunge in global markets over the last month, flashed a death cross Wednesday when its shorter-term moving average fell below its longer-term moving average. The index joins the S&P 500 , the Hang Seng and the German DAX as key global averages that formed a death cross in the last month.
A bearish technical indicator, a death cross occurs when a security’s 50-day moving average falls below its declining 200-day moving average.
“Those levels now define the intermediate-time trend. Any rebound you see from this point would be considered corrective rather than a directional move,” said John Kosar, director of research at Asbury Research.
For investors betting on a year-end rally, an increase in death crosses could be a damper.
Kosar defined the intermediate-term as the next one to two quarters, which now overlaps with the fourth quarter. Those last three months of the year are seasonally a strong period for the S&P.
There’s “a lot of good things happening (in the U.S. economy), but we’re also in a global decline that nobody knows (how long it’s going to last),” Kosar said.
Asbury Research subscribers can access our current outlook for US and global stock markets through year end by logging into the Research Center.