The Russell 2000 index of small-cap stocks has produced a bearish “death cross” price chart pattern for the first time in over a year, flashing a widely followed technical sell signal as small-caps are struggling with tightening financial conditions in the wake of bank failures and potential economic slowdown.
The Russell 2000 index RUT , which measures the performance of 2,000 small and medium-sized companies included in the Russell 3000 index maintained by Financial Times Stock Exchange Group, formed a so-called death cross for the first time since January 2022 on Friday. The Russell’s 50-day moving average was at 1818.35 as of Tuesday afternoon, while the 200-day stood at 1826.48, according to FactSet data .
Jeffrey Buchbinder, chief equity strategist at LPL Financial, said while small-caps may be weak near-term, they are also struggling with tightening financial conditions in the wake of the collapse of Silicon Valley Bank in March. “They’re more credit sensitive, and we’re probably heading for a recession later this year, so those factors suggest being careful with small-caps in the near term,” Bunchbinder said.
“’Death crosses’ are great times to sell based on historical data, but this time, it’s maybe better to just wait it out. It’s a little bit of a short-term bearish signal for one month, but if you look out three months, the average Russell 2000 gain after a ‘death cross’ is positive 4%,” Bunchbinder told MarketWatch in a phone interview on Tuesday.