(The Street) - The death cross means the index' 50-day moving average has dropped below its 200-day moving average.
The Nasdaq Composite index may be in for trouble, but then again it may not.
The index has formed a “death cross” chart pattern, meaning its 50-day moving average has dropped below its 200-day moving average.
That can be a sign of trouble ahead for stocks. For example, the pattern arose in June 2000, soon after the stock-market plunge began, and it emerged in January 2008, before the financial crisis, Bloomberg reports.
But the death cross also can be a lagging indicator. It showed up in April 2020, after the Nasdaq hit its trough the previous month.
The Nasdaq already has slid 16% from its Nov. 19 closing high.
Since 1971, the index has hit a death cross 31 times, and in 77% of those cases, the index was higher six months afterward, according to Potomac Fund Management, as cited by Bloomberg.
But there are plenty of experts who are bearish on stocks for reasons having nothing to do with the death cross. Bank of America strategists, led by Michael Hartnett, are among them
In the “next six months, rates shock morphs into recession shock,” they wrote in a commentary reflecting expectations of multiple interest rate hikes by the Federal Reserve.
BofA predicts the Fed will raise rates by 25 basis points at each of its remaining seven meetings this year, pushing the federal funds target range to 1.75% to 2%. This could upend the economy, the strategists said. “Recession risks [are] rising.”
And that’s not good news for stocks, they said. “We remain bearish [on] tech/stocks/credit.” Meanwhile, the strategists said they’re bullish on “volatility, cash and defensive assets.”
By DAN WEIL
February 18, 2022
