Death Cross

What is a Death Cross?

Let's kick things off with a definition. A Death Cross is a technical chart pattern indicating the potential for a major selloff. It appears 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.

Origin of the term

The term 'Death Cross' might sound ominous, and suitably so given its implications for the financial market. It was named due to the cross-like image it forms on the chart and is typically associated with sharp downturns in the specific security or a general market.

Interpreting a Death Cross

A Death Cross serves as a warning signal to traders that the downtrend might not only persist but intensify. Investors who pay heed to this warning often try to exit their positions to avoid potential losses. However, a death cross is essentially a lagging indicator. It only signals that a bear market is on the way, without precise timing.

Key To Remember

One important point is that not every Death Cross leads to a bear market. However, it is a powerful signal of a potential major downturn, making it crucial for traders and investors to keep an eye on. Understanding this pattern forms a critical piece of technical analysis knowledge.

Death Cross and its counterpart: Golden Cross

It's worth mentioning that the Death Cross' counterpart is the Golden Cross, a bullish signal that occurs when a short-term moving average crosses above a long-term moving average. Whereas a Death Cross is seen as bearish, a Golden Cross is considered bullish.