July 24, 2012     Skeptics and devotees of technical analysis took notice last week when Albert Edwards, the closely followed investment strategist at Societe Generale, warned the S&P 500 was “on the verge of an ultimate death cross,” foretelling imminent major losses for the stock market. Edwards’ sense of doom is misguided. An ultimate death cross is mathematically impossible unless the S&P were to suffer an immediate and precipitous decline. Moreover, the signal would provide a positive outlook, if it were to occur.

The ultimate death cross is when the 50-month moving average (MA) of the S&P moves below the 200-month MA. The difference between these moving averages – the spread – must be less than zero for an ultimate death cross to occur. The spread will form a trough before the end of this year, irrespective of the level of the S&P over the next few months. This could be the harbinger of good news – a macro signal that the stagnation period since the year 2000 for the S&P is now finally over, and that a new secular bull market could commence.