The Dow Jones Industrial Average rose marginally to close out the trading session on Monday, November 13. Meanwhile, the S&P 500 and the NASDAQ finished the day in negative territory. Unfortunately, the small gain for the Dow was overshadowed by an ominous technical signal: the death cross. What is the death cross? What does it mean for investors? Let’s jump in.
The ‘death cross’ is a market chart pattern that reflects recent price weakness. The ‘death cross’ refers to the drop of a short-term moving average. This means the average of recent closing prices for a stock, stock index, commodity, or cryptocurrency over a set period. Moreover, the most watched stock market moving averages are the 50-day and the 200-day.
While the ‘death cross’ may appear ominous, it is not a market milestone that automatically portends doom. Indeed, recent market history shows that the ‘death cross’ often precedes a rebound in the near term.
On Monday, November 13, the Dow Jones Industrial Average posted its first ‘death cross’ since March 2022. North American markets suffered a sharp decline in April. Even two straight sessions of the Dow finishing in the black were not enough to evade the ‘death cross’. David Rosenberg of Rosenberg Research warned last month that a death cross was looming, meaning that conditions were “Uber bearish” for stocks.
While the ‘death cross’ should not convince investors that a bearish turn is certain, it is an indicator that is worth paying attention to in an already choppy market. Turbulence could be on the horizon for the Dow and its peers in late 2023 and 2024.