BACKGROUND TO DEATH CROSS What Is a Death Cross?
The death cross is a technical chart pattern indicating the potential for a major sell-off. The death cross appears on a chart when a stock’s short-term moving average crosses below its long-term moving average. Typically, the most common moving averages used in this pattern are the 50-day and 200-day moving averages.
KEY TAKEAWAYS
- The death cross is a technical chart pattern indicating the potential for a major selloff and has proven to be a reliable predictor of some of the most severe bear markets of the past century, including 1929, 1938, 1974, and 2008.
- The death cross appears on a chart when a stock’s short-term moving average, usually the 50-day, crosses below its long-term moving average, usually the 200-day.
- The death cross can be contrasted with a golden cross indicating a bull price movement.
The death cross indicator has proven to be a reliable predictor of some of the most severe bear markets of the past century: in 1929, 1938, 1974, and 2008. Investors who got out of the stock market at the start of these bear markets avoided large losses that were as high as 90% in the 1930s. Because a death cross is a long-term indicator, as opposed to many short-term chart patterns such as the doji, it carries more weight for investors concerned about locking in gains before a new bear market gets underway. An increase in volume typically accompanies the appearance of the death cross.
Technical analysis by itself is not a certainty, but something to pay attention to.