Hello,

It’s possible that some readers might have stumbled across news headlines warning of a market “Death Cross” last week, which might have induced a certain degree of anxiety about what such an ominous title could mean for investor portfolios.

 

A “Death Cross” is a trading term for one of the many signals that arise from technical analysis – which is, simply put, the use of historical price movements to forecast the direction of future ones. A “Death Cross” occurs when the 50-day moving average (technical jargon for the average closing price of an asset over the past 50 days) falls beneath the 200-day moving average.

 

The bad news is that loyal advocates for technical analysis argue this is a bearish signal that has preceded significant market downturns in the past. The good news is that history shows it isn’t quite the harbinger of doom that the name implies. In the last 20 instances of a “Death Cross”, the S&P 500 was higher a year later 80% of the time.

 

This highlights why a multi-faceted approach to investment analysis is advisable. Technical analysis is just one of numerous schools of thought that are commonly employed by investment managers; others including fundamental, quantitative, and qualitative analysis. With each method carrying its own merits, a holistic approach, and an awareness of other investment styles evident in the market, is typically appropriate for sensible decision-making.

 

As always, if you wish to discuss anything in this newsletter in further detail, please do get in touch.