(Bloomberg) — The Index tumbled into an ominous “death cross” technical formation Friday morning for the first time since April 2020, when the pandemic battered the global economy and U.S. equity markets swooned.

Since reaching a record-setting high of Nov. 19, the index lost 15%. This pattern is often used by investors to predict further weakness. It appears when an index’s short-term 50-day moving average crosses below its longer-term 200-day moving average, 

This occurred when the dotcom bubble burst in June 2000. It also happened again in January 2008, just before the financial crisis.

“When you hear ‘death cross’ your antenna goes up,” Jay Woods, chief markets strategist at DriveWealth Institutional, said in a phone interview. “It doesn’t always mean doom and gloom is coming. It just means we’ll likely be in a more extended downtrend.”

The Federal Reserve prepares for the sharpest monetary tightening in many decades to try and bring down inflation. As their high valuations make them targets, this has caused wild swings in rate-sensitive growth, Internet, tech and technology stocks which fill the Nasdaq Composite. 

A death cross is a historically lagging indicator. This means that the stock market move will have already taken place by the time the sign appears. Woods explained that while the Nasdaq reached a death cross in April 2019, the index hit its lowest point in March 2020. 

“This could actually be a buying opportunity for longer-term investors since stock prices are getting cheaper,” Woods added. 

Potomac Fund Management has compiled data that shows 31 deaths crosses have taken place for the Nasdaq Composite over the past 41 years. In the following 21 days, 71% of the index was increased and 77% more six months later.

“A signal like the death cross has preceded major drawdowns in the past, but there hasn’t always been a major market decline following one,” said Dan Russo, portfolio manager at Potomac Fund Management. “Market breadth is still a concern for investors right now, but as long as we stay above the January lows, it will likely be choppy consolidation. If we fall below those lows though, I think it’s a good idea to manage your risk.”

©2022 Bloomberg L.P.