The Dow Jones Transportation Average has recently triggered what market technicians call a moving average “death cross” event. A moving average death cross is when the shorter-term 50-day simple moving average crosses below its longer-term 200-day simple moving average. Based on historical data, however, the death cross is not likely to trigger much doom and gloom for broad-based equities over the intermediate-term time horizon.
Looking at historical data going back to 1987, when the 50-day simple moving average crosses below the 200-day simple moving average on the Dow Jones Transportation Index, subsequent returns on the S&P 500 Index tended to be flat for approximately three months, then moved higher over the next nine months (see the chart below). Since 1987, there were 22 times this happened. Three months later, the S&P 500 was higher 11/22 times (50% of the time) with an average return of 0.72% and a median return of 0.16%. Six months later, returns were higher 14/22 times (64% of the time) with an average return of 2.8% and a median return of 2.2%. Looking out over 12 months, the returns were higher 14/22 times (64% of the time) with an average return of 5.7% and a median return of 10.2%.
Is a death cross event in the Dow Jones Transportation Index necessarily bad for the overall U.S. equity markets? No, not always; and in more cases than not, a death cross event on the Transportation Index results in the S&P 500 Index moving higher over the next 3–12 months and may present an opportunity to buy broad-based equities on a dip.
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
The economic forecasts set forth in the presentation may not develop as predicted.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
Stock investing involves risk including loss of principal.
Technical analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical analysis should be used in conjunction with fundamental analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples.
The Dow Jones Transportation Index is the oldest stock index in the United States (first published in 1884), and is comprised of large, publicly traded transportation companies based in the U.S. It is price-weighted index and is currently owned by S&P Global.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This research material has been prepared by LPL Financial LLC.
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