The technical signal known as a death cross flashed a warning to broader market investors last week.
The S&P 500 (SP500) (NYSEARCA:SPY) 50-day moving average moved below the 200-day MA on March 14, which is generally considered bearish. But the signal needs confirmation from other technicals, according to BofA strategist Stephen Suttmeier.
“Although many investors believe the death cross is a very bearish signal, the SPX tends to show positive, but lackluster, returns after the death cross,” Suttmeier wrote in a note.
The death cross is more of an overhang for U.S. equities when the MACD momentum indicator turns bearish in the same month as the death cross, he said.
If the S&P closes below 4,592.86 for March, monthly MACD would turn bearish.
“SPX death cross signals are quite bullish if monthly MACD does not flip bearish in the same months as the death cross signal,” he added. “If SPX closes above 4,592.86 this month, it would avert a monthly MACD sell signal.”
“This would suggest much stronger and well above historical average market returns from the death cross signal date.”
The index is less than 2% below that level currently.
S&P ETFs closed Tuesday above their 200-day moving averages.