As we approach the end of 2020, one of the most volatile years in recent history for the global population and world economies, a quick look at the charts shows just how volatile the year has been for markets, as well. Some of what characterized 2020 have included: a global pandemic that continues to take a massive human toll and has reshaped economies and industries; a worldwide recession causing record unemployment levels; a highly contentious U.S. presidential election and political environment; the fastest bear market downturn in history; and the fastest bull market recovery in history. That's quite a lot for one year, and it's not even over yet.
Here, we'll take a look at how this roller coaster of a year has played out on the charts, and the key technical analysis patterns that have helped define the markets in 2020. Below, we'll show how these chart patterns have emerged on the benchmark S&P 500 equity index.
The golden cross is a bullish technical chart pattern in which a relatively short-term moving average crosses above a long-term moving average. Golden crosses tend to indicate a potential bull market on the horizon and are reinforced by high trading volumes.
The pivotal golden cross of 2020 occurred in July on the S&P 500 and has been followed since then by a strong, but choppy, bullish trend that has brought the index and the markets to new record highs. The 50-day moving average crossed above the 200-day moving average in a move that brought new confidence to technical analysts and traders. It was the first such golden cross since March-April of 2019.
The death cross is a bearish technical chart pattern indicating a sell-off in progress or the potential for a major sell-off. The death cross appears on a chart when a relatively short-term moving average crosses below a longer-term moving average. Death crosses tend to indicate a potential bear market and are reinforced by high trading volumes.
Prior to the golden cross in July that signified a market recovery in progress, the S&P 500 formed an ominous death cross in late March, coinciding with the sharp market drop triggered by the rapidly escalating impact of the COVID-19 pandemic on the global population and economies. Because the market collapse was so rapid, the cross of the 50-day moving average below the 200-day moving average occurred relatively late, after a market bottom had already been established and stocks had begun to ease off their lows.
A V-bottom is a V-shaped pattern that is characterized by a sharp and sudden price drop followed by an equally sharp and sudden price rise. V-bottoms symbolize rapid deterioration and a quick recovery, often back up to a previous peak.
Somewhere between the death cross in March and the golden cross in July, the equity markets had formed an astonishingly sharp V-shaped bottoming pattern. This V-bottom on the S&P 500 and other benchmark indexes represented the sheer strength and speed of the market recovery, despite the intensifying human and economic impact of the pandemic. Of course, what's happened since that V-bottom is clear—the market continued to rally off that bottom and went on to hit new highs.
A double bottom pattern is a technical analysis charting pattern that describes a price drop on a chart, a rebound, another drop to the same or similar level as the original drop, and finally another rebound. The double bottom looks like the letter "W," and the twice-touched low is considered a support level.
Aside from the massive V-bottom in March through May of 2020, the ensuing bull market went on to form at least two double-bottoming patterns—one in June and an even larger one in late September through late October. In both cases, the double bottom patterns occurred within a strong bullish trend, signifying major pullbacks that ultimately resolved into robust continuations of the underlying uptrend.
Though it's not technically a true technical analysis pattern, a breakout is a major move above resistance (or below support) that occurs frequently in all markets, especially during strongly trending price moves. Breakouts indicate the potential for the price to continue trending in the breakout direction.
In 2020, breakouts have been a major trend, whether it was the big breakdowns below support in February and March, or the big breakouts above resistance since March. Perhaps the most important breakout of 2020 occurred in August, when the S&P 500 finally (and very surprisingly) broke out above its previous record high that was established in February, before the pandemic-driven price collapse. The latest major breakout, as of this writing, occurred in November when the S&P 500 again broke out to new all-time highs, placing the index on track to end the year in surprisingly positive territory.