A death cross in stocks is a technical chart pattern that signals a potential bearish trend or market downturn. It occurs when a short-term moving average, typically the 50-day moving average, crosses below a longer-term moving average, usually the 200-day moving average
. This crossover suggests that recent price momentum is weakening and that selling pressure may be increasing, potentially indicating a shift from a bullish (rising) market to a bearish (declining) one
. The pattern forms in three phases: an uptrend losing momentum, the actual crossover (death cross), and a continuation of the downward trend
. Despite its ominous name, the death cross is not always a definitive signal of a prolonged decline; historically, it has sometimes been followed by rebounds and above-average returns in the short term
. It is often used alongside other indicators like trading volume and MACD to confirm trend changes
. The opposite of a death cross is the golden cross , where the 50-day moving average crosses above the 200-day moving average, signaling a potential bullish market trend
. In summary:
- Death Cross : 50-day MA crosses below 200-day MA → potential bearish signal
- Golden Cross : 50-day MA crosses above 200-day MA → potential bullish signal
The death cross is widely watched by traders as a warning sign of possible market weakness but should be considered with other factors for investment decisions
