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60 Seconds: What is a Death Cross?

Credit: The Street
Published on July 11, 2019 - Duration: 01:09s

60 Seconds: What is a Death Cross?

While technical indicators are by no means a magic ball, seasoned investors recognize that flashing signals from the charts can offer a big leg up.

The "death cross" is one that can often help save investors from realizing the full force of selling pressures that could cause a great deal of pain in their portfilios.

The pattern is formed when a shorter-term moving average, most commonly the 50-day moving average, crosses above the longer term 200-day moving average to the downside.

The trend, coupled with strong trading volume, is seen as a key indicator of a sustained bearish trend ahead that investors should try to avoid.

Additionally, with algorithmic trading becoming an ever more dominant trend, the technical factor can spark added selling pressure and cement that trend.

For a concrete example, Bed Bath & Beyond formed a death cross multiple times on its way down, most recently in late June as investors became worried about its July quarterly report.

Had speculative traders trimmed positions at the signal, much of the pain on earnings day might have been avoided.

For a quick explainer on how to spot the pattern forming and what it means for investors, check out the video above.

For more in depth analysis of individual stock chart readings and a slew of other chart patterns to watch, head over to Real Money for daily insights from Certified Market Technician Bruce Kamich.

60 Seconds: What's a Golden Cross Pattern?

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