Don’t Fear The Death Cross

The dreaded ‘Death Cross’ just triggered in the S&P 500 Index on March 14th, 2022. This is when the 50-day moving average crosses over the 200-day moving average to the downside. This has been known to be a very bearish chart signal for the stock market. It basically tells investors that the trend has turned down and most stocks will fall lower. While this indicator can often play out and cause stocks to fall, there have been many instances when it has not worked out and has failed.

The key to this ‘Death Cross’ formation is really what happens after the cross over takes place. Traders must watch for the separation from the moving averages in a few weeks after the crossover occurs. If you have continued separation in 3 to 4 weeks after the crossover triggers then it is usually a much negative signal for the markets. There have been times when the ‘Death Cross’ occurs and then after a week or so the moving averages start to cross back to the upside. This is why traders should not just jump to conclusions when a ‘Death Cross’ initially takes place. As a rule, it’s important to see what happens in several weeks before assuming the worst for markets.       

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