As for how the Dow fared in terms of average performances following a death cross, again, the fearmongering isn’t necessarily justified. The average one-month performance after the past 17 death crosses was a little better than a breakeven. Three months later the Dow was typically up 2.8%. The six-month average gain following a death cross for the Dow Jones Industrial Average is a healthy 5.8%.
Respect history, but respect the possibility too
This isn’t to suggest last week’s fresh death cross is something to shrug off. The indicator’s track record may be spotty, but it did foretell trouble in 2001 and then again in 2002, and once again in 2008. When it’s right, it’s really right.
It’s also difficult to deny the ripple effect of the coronavirus outbreak is directly impacting the economy. Every day the contagion is allowed to grow rather than be curbed, workers are displaced and opportunities to drive revenue are lost. The longer it persists, the deeper the hole the global economy digs its way into. Never mind the fact that we’re arguably overdue for a recession anyway.