Death Cross
Definition of Death Cross
In technical analysis, the death cross signifies a bearish signal, indicating that a potential sell-off might be on the way. It occurs when a stock’s or index’s short-term moving average, typically the 50-day moving average, crosses below its long-term moving average, often referred to as the 200-day moving average. This pattern is a signal that short-term momentum is declining relative to the long-term trend.
We observe death crosses in various markets, and though they are mainly associated with the stock market, they can also apply to commodities and other financial instruments.
Investors and traders often view the appearance of a death cross as a time for caution, suggesting the possibility of a significant downtrend.
Here’s a simple table to illustrate the concept:
| Moving Average Type | Description |
|---|---|
| 50-day | Short-term moving average |
| 200-day | Long-term moving average |
| Death Cross | 50-day crosses below 200-day |
It’s crucial for us to understand that the death cross is not a guaranteed prediction of severe market downturns. Rather, it is one of the many tools we use to analyze market conditions.
Some traders may consider other factors such as volume, current news, and other technical indicators before making investment decisions.