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And Now for Something Completely Different: The ''Ultimate'' Death Cross

July 17, 2012

by Doug Short

James Ross, the University Architect at UNC Wilmington and an astute observer of the economy, called my attention to an amusing Business Insider piece published yesterday: The S&P Is On The Verge Of The Ultimate Death Cross. The piece mentions a note published Monday by Societe Generale analyst Albert Edwards, who points out that the S&P is on the verge of an "ultimate" death cross. And what, pray tell, is that? A 50-200 moving average crossover, based on months, not days (or even weeks).

So let's check this out. The S&P 500 only dates back to March 1957. Since that time the 50-month MA has never crossed below the 200 month MA. The closest it came was the June 1978 monthly close, which gave us a 2.09 point spread between the 50-month (92.09) and the 200-month (90.00). During the 55-plus years that the S&P 500 has existed, there has never been an "Ultimate" Death Cross.

At the end of last month, the spread was a little over 11 points.

How disastrous would a trip to the "Death Zone" be? Let's look further back in time. The chart below uses the S&P Composite data set popularized by Yale professor Robert Shiller. It consists of the monthly averages of daily closes since 1871 -- over 140 years of US market history.

The annotations on the chart speak for themselves.

Postscript : Yes, the title of this piece includes an allusion to a regular Monty Python feature, a favorite of many of my fellow Boomers.