- A ‘Death Cross’ appeared on the Dow Jones Industrial Average on Monday
- The ominous sign is often an indicator of a downturn in the market
- The pattern has appeared before major crashes, including 1929, 1938, 1974 and 2008
An ominous ‘death cross’ has spooked traders and fueled fears that the stock market could be heading for a big decline despite positive market moves.
This worrying sign, which appeared before several major crashes, including those of 2008 and 1929, is widely seen as an indicator that the market is headed for a downturn.
The last time it appeared was March 2022, when markets fell as much as 12 percent in six months.
The stark chart pattern occurs when a security’s shorter-term moving average (usually 50 days) falls below its longer-term average (200 days) and typically marks the point at which a short-term dip becomes a longer-term downtrend .
That was recorded on the Dow Jones Industrial Average on Monday, the day before markets posted their strongest performance since April and reached their highest close since September 14.
Traders are alarmed by the appearance of a ‘death cross’ on the Dow Jones Industrial Average, which can often appear before a market downturn
Death Crosses have been noted preceding several major historical crashes, including those of 1929, 1938, 1974 and 2008
The Dow Jones index has risen 4.44 percent in six months, while the S&P 500 rose 8.69 percent on news that annual inflation fell slightly to 3.2 percent
The Dow Jones index has risen 4.44 percent in six months, while the S&P 500 rose 8.69 percent on news that annual inflation fell slightly to 3.2 percent.
Investors are hopeful that the cooling in consumer prices will signal an end to the Federal Reserve’s aggressive rate hike, which currently stands at a 22-year high of between 5.25 and 5.5 percent.
However, the appearance of the ‘death cross’ worries experts as it usually signals a change in the market from bullish to bearish.
A bear market occurs when stocks go through a period of prolonged decline, which stimulates selling.
Strategist David Rosenberg, president of Rosenberg Research, warned last month that the Dow Jones was “now at serious risk of experiencing the uber-bearish ‘Death Cross.’
Analysts also pointed out that a “death cross” has appeared before many major historical downturns.
The death cross seen in January 2008, ahead of the financial crisis, caused the blue chip gauge to plummet 30 percent over the next twelve months.
The same pattern was observed prior to the 1929 crash, before the three-year bear market of the 1930s, during which the S&P fell 83.4 percent.
The death cross seen in January 2008 ahead of the financial crisis caused the blue chip gauge to plummet 30 percent over the next twelve months
The dreaded sign has appeared despite US stocks posting their strongest results since April
They also appeared in 1938 and again in 1974, one of the worst stock market plunges since the Great Depression.
Investors Jim Rogers and David Einhorn have both warned of an impending recession. Business insider reports.
“It’s a difficult time and we remain concerned about the direction of the market,” Einhorn said.
However, according to Seeking Alpha, “death crosses” have appeared when the market had just undergone a correction.
For example, the death cross from March 2020 was followed by an increase of 74.4 percent over the year.
Many experts believe that death crosses can also be a good time to buy a security because investors buy an asset while the price is low, expecting the value to rise in the future.