How Does VIX React to an S&P Death Cross?

A death cross occurs when the S&P 500's 50-day moving average crosses below its 200-day moving average and is widely interpreted as the start of a downward market. We examined all 15 death crosses since 1990 and tracked VIX behavior before, during, and after each one. By the time the cross occurs, VIX has typically already spiked. What follows is, more often than not, a market recovery rather than further decline.

By the cross, the fear is already in

A death cross is slow by construction. A 50-day average only sinks beneath a 200-day average after roughly two months of decline, which means the VIX is likely already elevated.

The death cross does not warn that fear is coming. It confirms that fear is already here.

After the cross, VIX fades (but chops)

Over the 40 trading days after a death cross, VIX fell a median of 2.7 points. The decline was rarely smooth though. In 87% of cases, VIX made a higher high at some point before settling lower, pointing to a pattern of more chop. Much of this decline occurs regardless of the cross. From any random day when VIX was around 25, the next 40 days produced a median drop of 1.4 points. The death cross contributes a modest additional decline, but the majority of the move simply reflects an elevated VIX reverting toward its mean.

Death Crosses are a buy

The death cross is far more misleading than most traders realize. Historically it has marked something closer to the end of a down move than the start of one. Across the 15 death crosses on record, the S&P 500 was higher 80% of the time 60 trading days later and posted a median gain of 6.1%.

The death cross is a major lag indicator because by the time two months of selling have pulled the 50-day average below the 200-day, much of the downward pressure has often been exhausted and the market begins to recover. The clear exceptions were the major bear markets: the dot-com unwind, the financial crisis, and 2022 Russian Invasion of Ukraine. In those three cases the decline continued. The other twelve saw bounces.