The Dow Jones Industrial Average is poised to form a “death cross”

An important indicator of the stock market is on the brink of forming a "death cross".

It has been over two years since the last bearish signal was seen, which was during the Covid pandemic.

Goldman Sachs and UBS anticipate that shares will increase in the coming year.

Since late October, the Dow Jones Industrial Average (DJIA) has increased by 8%, now standing at a level above 35,000.

It appears that the stock market is headed for its most successful month since June, as the US Federal Reserve is thought to have finished its series of interest rate increases. The economy is still strong and inflation is slowing down.

Despite the optimism of some, many well-known investors, such as Jim Rogers and David Einhorn, have cautioned of an impending recession and its potential to adversely affect stocks.

The "death cross" is an important indication that a sell signal is imminent on the daily chart of the Dow Jones Index. This occurs when the 50-day moving average (50-MA) drops below the 200-day moving average.

If the Dow Jones Index starts to drop, a technical analysis figure indicating a decrease in the asset will emerge. Currently, the 50-MA and 200-MA are nearly flat and have combined into one line.

The Institute of Corporate Finance describes this formation as a sign of a bear market, which is a transition from a bull market. Many experts agree with this assessment.

In March 2020, a crisis occurred which resulted in the Dow Jones index dropping by approximately 12% over the following five months. This was the last time this model was formed.

Seeking Alpha notes that the emergence of a death cross signals a decrease in short-term momentum and a downward trend in prices. This pattern has been seen before the majority of bear markets in the last century, such as those in 1929, 1938, 1974 and 2008. However, death crosses have also been observed following a prior asset correction.

Goldman Sachs is hopeful for the US economy in the upcoming year, predicting a “soft landing”. They believe that a positive macroeconomic outlook and lower bond yields will help to boost stocks and economic growth. The bank anticipates that the S&P 500 could reach 4,700 points, which is a 4% increase from current levels.

UBS agrees with this outlook. The US economy is slowing down, inflation is decreasing, and interest rates are expected to drop, which will cause Treasury yields to go down. This should be beneficial for the stock market.