In One Chart: A sideways stock market could lead to this ominous chart pattern by Memorial Day

Memorial Day is a holiday for the U.S. stock market, but this year it may not be one that many on Wall Street will want to celebrate, from an investment perspective.

The U.S. stock market has largely been moving sideways over the past several weeks, meaning that while swings have been sizable in both directions, it has mostly traded within a range. With the S&P 500 SPX, +0.98%  well off a record high set in early January, its 50-day moving average, a closely watched level that is often used as a proxy for the short-term momentum of an asset’s price, has been moving lower.

The moving average is currently at 2,686.97, down from a recent peak of 2,748.63 hit on March 19. The S&P hasn’t closed above its 50-day moving average since March 16.

At the same time, the market’s general uptrend over the past 12 months—a period over which the S&P is up 15%—means that the index’s 200-day moving average has been sloping upward. This line, which the S&P has dipped below a couple of times in 2018, is used as a measurement of longer-term momentum patterns.

These trends, if they persist, could soon result in a bearish technical signal, one that could start flashing around the late-May holiday.

“Mathematically, if the market continues to go mostly sideways over the next four to six weeks, the S&P will hit a 50/200 day ‘death-cross’ at about 2,629, right around Memorial Day,” wrote Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research. The S&P last traded at 2,684.

A “death cross” is when the 50-day moving average of a security drops below the 200-day average. It is widely seen as a bearish indicator that can signal weakening trends, and point to deeper losses ahead, though like any indicator it isn’t infallible.

See: A Facebook ‘death cross’ has arrived, and it may actually be bearish this time

Frederick noted that he didn’t necessarily expect this, saying his comments were “not a forecast, just an observation.” He added that “if the market goes back into a sustained uptrend, the 50-day [simple moving average] will turn higher and could avoid crossing through the 200-day SMA. It’s impossible to know which will happen at the moment, but it is worth watching in the near-term.”

Read: Why stocks could fall nearly 40% over the coming 18 months

Also: U.S. stock valuations are at multiyear highs—and multiyear lows

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