Chart Of The Week: Death Watch

One relatively obscure technical chart pattern, known ominously as the “death cross”, has caught my attention recently. The reason is, if you look across the 70 countries we monitor, almost 80% of markets have seen this omen light up. So, what does it mean for global equities?

This week’s chart comes from a special report on global equities which covered market breadth, technicals, and a variety of valuation metrics.

The chart in question shows the proportion of global equity markets which have seen a death cross pattern.

global equities proportion of countries with a death cross chart

Specifically, the chart shows in the red line the proportion of the 70 countries we track that have seen their 50-day moving averages cross below their respective 200-day moving averages (the definition of a death cross). The MSCI All Countries World Index is shown in local currency terms against this unique breadth indicator.

There are a couple of things to think about with regard to an indicator like this. For one, whenever you have a global equity selloff, this indicator is most likely going to spike, and the issue is it can spike during a correction as well as a bear market. My instinct is to call the current readings an indication of global markets being oversold (not a bear market). We’ve seen a reset in global equity valuations, and from my perspective, I don’t see imminent risk of recession.