Death Cross

Loading the player...

What is a 'Death Cross'

A death cross is a crossover resulting from a security's long-term moving average breaking above its short-term moving average or support level. It is so named due to the shape created when charting the activity and its association with a downward market trend. As long-term indicators carry more weight, this trend indicates a bear market on the horizon and is reinforced by high trading volumes. Additionally, the long-term moving average becomes the new resistance level in the rising market.

Death Cross

BREAKING DOWN 'Death Cross'

The death cross can occur in individual stocks, within various funds, and when examining indices and averages. Considered a bearish signal within the market, a death cross occurs when the short-term, 50-day moving average, also called a price trend, crosses below the long-term, 200-day moving average. It is named a death cross due to the X shape it makes when the trend is charted and is often considered a sign of further losses for a particular stock.

The death cross is seen as a decline in short-term momentum and can result in further losses as investors move away from the particular investment vehicle involved. However, it is not a guarantee of further losses as other market forces can override the fears relating to the trend. Further, a death cross is generally seen as temporary when examined in the long term.

Understanding Moving Averages

Moving averages relate to the change measured within a data set over time. In financial terms, the moving average monitors the change in a particular asset's value from day to day, focusing on the mean between two particular consecutive data points, to chart a course. This demonstrates the asset's current momentum within the marketplace.

Death Crosses and Market Averages

A death cross can be formed when charting an index fund as well as individual stocks. During times when all four major averages, the NASDAQ, Dow Jones Industrial Average, the S&P 500 and the Russell 2000, fall into a death cross simultaneously, they are generally referred to as the “four horsemen of the apocalypse” due to the negative connotations surrounding the event.

Significance of a Death Cross

Generally, the significance of a death cross is related to recent changes in trading volume. The higher the trading volume, the more meaningful the death cross is said to be, and vice versa. While some consider this movement as a foreshadowing of changing market trends, others believe it better represents trend changes that have already occurred and may not be indicative of future potential.

The Golden Cross

The opposite of the death cross is the golden cross. This marks a time when the short-term, 50-day moving average moves above the long-term, 200-day average. This tends to be associated with positive momentum and is seen as bullish in nature.

RELATED TERMS
  1. Golden Cross

    A crossover involving a security's short-term moving average ...
  2. Death Master File (DMF)

    Also known as Social Security Death Index. A list of people whose ...
  3. Level Death Benefit

    A life insurance payout that is the same whether the insured ...
  4. Additional Death Benefit

    An amount that is paid to the beneficiary of a life insurance ...
  5. Accidental Death Benefit

    The payment due to the beneficiary of an accidental death insurance ...
  6. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
Related Articles
  1. Markets

    What's a Death Cross?

    A death cross is seen when the short-term moving average of a security or index falls below its long-term moving average.
  2. ETFs & Mutual Funds

    Using Moving Averages to Buy ETFs

    Learn how to use moving averages to enter and exit trades in ETFs, and understand some popular technical setups using moving averages.
  3. Trading

    Use Moving Averages to Buy Stocks

    A moving average constantly updates a stock's average price, but it cannot predict a stock's performance.
  4. Trading

    What a Golden Cross Might Mean

    Many technicians see a golden cross as a sign that a stock’s value is headed higher. If a stock’s performance continues to lag, and no golden cross appears, its moving averages will remain roughly ...
  5. Trading

    Simple Moving Averages Make Trends Stand Out

    The moving average is easy to calculate and, once plotted on a chart, is a powerful visual trend-spotting tool.
  6. Investing

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools for trading and analyzing financial markets.
  7. Managing Wealth

    Life Insurance With an Increasing Death Benefit

    Why buy a life insurance policy with an increasing rather than level death benefit
  8. Trading

    Forex Investing: How To Use The Golden Cross

    Many currency traders know about the golden cross, but most don't utilize it. Learn how you can profit from this FX trend indicator.
  9. Trading

    The Four Most Common Indicators in Trend Trading

    Here are the top indicators and tools trend traders use to establish when trends exist and find entry/exit points.
  10. Markets

    How a Death Benefit in a Variable Annuity Works

    A look at how the death benefit in a variable annuity works.
RELATED FAQS
  1. What does it mean when an index or stock exhibits a death cross?

    Find out what it means when an index, stock or exchange exhibits a death cross pattern between its short-term and long-term ... Read Answer >>
  2. What is the difference between a Golden Cross and a Death Cross Pattern?

    Learn the difference between the golden cross and the death cross, both of which are considered important technical indicators ... Read Answer >>
  3. How can traders profit from a death cross pattern?

    Seek long-term profits by using the death cross pattern to identify either a trading entry point or a major resistance level ... Read Answer >>
  4. How are Golden Cross patterns interpreted by analysts and traders?

    Learn why the golden cross is considered a major technical indicator of a bull market in an individual stock, market index, ... Read Answer >>
  5. How effective is creating trade entries after spotting a Golden Cross pattern?

    Explore the components of the golden cross pattern for elements of effective trading strategy based on this pattern, including ... Read Answer >>
  6. How do I build a profitable strategy when spotting a Golden Cross pattern?

    Learn the primary trading strategies that traders and market analysts employ when they have identified the occurrence of ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center