Russell 2000’s 50-day moving average closes below 200-day average

Small caps came within hailing distance of a bear market last week.

The Russell 2000 small-cap stock index on Thursday suffered an ominous-sounding development on its daily chart: a so-called death cross.

Photo: Dow Jones Market Data

A death cross occurs when the 50-day moving average, seen by technicians as a proxy for the short-term trend, crosses below the 200-day moving average, a proxy for the long-term trend. Technical analysts see that occurrence as marking the spot where a shorter-term correction turns into a longer-term downtrend.

The Russell 2000 fell 0.7% Thursday to close at 2,068.63. That left the 50-day moving average at 2,201.63, with the 200-day average at 2,203.09, according to FactSet data. The index has bounced since closing March 13 at 1,993.69, which was its lowest settlement since May 1 of last year and left it down more than 18% from its 52-week high set on Nov. 24 — not far off the 20% pullback threshold that would mark the start of a bear market.

But, as noted by MarketWatch’s Tomi Kilgore, a death cross isn’t seen as much of a market-timing tool, as they tend to be telegraphed.

The Russell 2000 last flashed a death-cross pattern on Oct. 13, 2023, and exited it — with the 50-day average moving back above the 200-day average — on Dec. 29, 2023.

Dow Jones Market Data took a look at the Russell 2000’s performance after entering previous death crosses, and found that while the near-term performance tended to be weak, it fared better over the longer term (see table below).

It was a choppy day for stocks, with major indexes ending in the red. The Dow Jones Industrial Average fell 11.31 points, or less than 0.1%, to finish at 41,953.32. The S&P 500 shed 0.2% and the Nasdaq Composite gave back 0.3%. The S&P 500 last week joined the Nasdaq and the Russell 2000 in correction territory, defined as a pullback of 10% from a recent high.