A death cross is a technical analysis chart pattern that typically signals that further worsening in a bear market trend is likely to occur. It is identified when a stock's shorter-term moving average (often considered 50-day) crosses below its longer-term moving average (often considered 200-day). This moving average crossover is considered a bearish indicator and is a sign that the stock or index may be headed for lower prices and tougher times ahead.

The death cross indicates a change in the long-term trend of a stock or index from an uptrend to a downtrend. During a downtrend, short-term prices will consistently be below the longer-term averages, leading to the crossing and signaling that further downside is likely. First observed by Charles Dow, who used two moving averages and found the death crossover to predict changes in the broad market.

The rise of the 50-day moving average above the 200-day moving average is known as a golden cross, and is a sign that the downward market momentum may be coming to an end and that the stock or index may be headed for a rebound.

Despite the dramatic name, the death cross has been followed by above-average short-term returns over the past few years. This result is in direct opposition to traditional technical analysis principles. The cause of this improved performance of death crosses is related to increased volatility and volume in the stock market.

It is important to remember that the death cross should not be used as a trading signal in a vacuum. It is only useful when combined with other data points like price trends, macroeconomic news, and sentiment. Traders should not take action based solely on a death cross, but rather, use it as part of a holistic approach to deciphering market conditions. Additionally, traders should not only pay attention when the death cross appears, but monitor how long the pattern has been in place. The longer the death cross remains in place, the more reliable the signal provided by the pattern becomes.

The death cross is a useful tool for traders looking to make a bearish bet on a stock or market index. However, it should be used in conjunction with other signals to get a better idea of overall market conditions. Additionally, traders should pay attention to the time frame of the death cross and the associated performances in order to ensure that they are making informed decisions based on current market conditions.