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It's been 14 trading sessions since the financial media was abuzz with the fact that the Russell 2000 Index experienced a Death Cross. That is to say, its 50-day simple moving average (SMA) trended below its 200-day SMA. The coverage was all about why the Death Cross spelled impending doom for small-cap stocks and, by extension, the entire stock market.
In fact, in all of the Death Cross commentary I saw on television and read on the Internet there was no mention of historical performance after a Death Cross. None! Just a lot of hyperbole about why we should be concerned.
Indeed, instead of even the most basic statistics, all the well-spoken analysts, well-dressed pundits, and market commentators just kept showing chart screenshots of the current market condition as a reason why we should all hunker down for a correction.
Basically, a sample set of one.
And as you remember from Statistics 101, a sample set of one means absolutely nothing! It's not's even really a set because a set implies at least two data points.
The lack of statistical support raised quite a few questions about the actual performance of stocks following instances of a Death Cross and the Golden Cross – when the 50-day SMA trends above the 200-day SMA.
So, I took it upon myself to do myth-busting, and what I found has startlingly lucrative implications for every savvy investor.
Indeed, my test results suggest some actions that will set us up for a profitable ride ahead…
Comparing These Returns Yields Some Startling Conclusions
What really caught my attention on September 22, 2014, when the Russell Death Cross occurred, was how much time analysts and pundits alike were spending making bearish predictions – but how little actual statistics were being used to support their claims.
After several hours, and few shots of espresso, a handful of dark chocolate-covered peanuts, and a 16,296 line Excel spreadsheet, I have definitive answers to some simple performance-related questions about the Death Cross and the Golden Cross.
For my research, I decided to study the S&P 500, because not only is it the most widely used benchmark, but it also allowed me to use Yahoo! Finance to track historical pricing all the way back to 1950.
And here's what I found…
Tracking the S&P 500 all the way back 1950, there have been 32 instances of a Death Cross and 32 occurrences of a Golden Cross.
With that as my starting point, I had a few questions…
The first thing I wanted to know was: How would an investor have performed if they were simply to establish a "short position" in the S&P 500 every time a Death Cross occurred and then flip the trade to a " long position" every time a Golden Cross occurred?
Using that simple strategy, an investor would have turned $10,000 into $455,544.33 for a 4,455.44% return over the last 64 years.
That sounds pretty good… Until you consider that the S&P 500 actually returned7,787.68% all on its own over the same time period.
It's pretty clear, trying to time the markets using a simple Death Cross/Golden Cross strategy isn't a winner over the long term.
Okay, that's one question answered.
The next thing I wanted to know was: What is the difference in performance between the "long periods" and "short periods"?
A "long period" is defined as any period when the 50-day SMA was above the 200-day SMA, which would follow a Golden Cross.
And a "short period" is defined as any period when the 50-day SMA was below the 200-day SMA, which would follow the dreaded Death Cross.
The results are going to surprise you.
About the Author
Sid is the investment community's best-kept secret. Since 2009, he's served at Money Map Press as Director of Research, analyzing thousands of securities and profit opportunities for subscribers. He's an expert in identifying "alpha" potential in a wide variety of industries, but especially the small-cap sector, where he's discovered a pattern of profits that's almost foolproof.
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