The Dow Jones Industrial Average index saw a "death cross" on Monday for the first time since March 2022. It sounds ominous, but does it mean you should be worried about the economy and a potential stock market drop?
A "death cross" occurs when a stock's 50-day moving average drops below its 200-day average -- indicating momentum is weakening.
The formation often appears before a downturn in the market. Death crosses preceded the stock market crash of 1929 and before the 2008 crash.
According to Investopedia: "As long as the 50-day moving average of a stock price remains above the 200-day moving average, the stock is generally thought to be in a bullish trend. A crossover to the downside of the 200-day moving average is interpreted as bearish."
A bull market refers to a major upswing in the markets and generally corresponds to periods of economic and job growth, while a bear market is a pronounced market downturn and is often tied to periods of economic decline and a shrinking economy, according to Time Magazine.
The death cross is considered a significant chart pattern by many investors.
"In short, traders who believe in the pattern's reliability say that a security is 'dead' once this bearish moving average crossover occurs," per the Corporate Finance Institute.
At the same time, doom and gloom isn't guaranteed.
The death cross "only tells you that price action has deteriorated over a period a little longer than two months," according to Investopedia. In recent years, the death cross has "been followed by above-average short-term returns."
Some experts say the pattern actually provides a great opportunity for investors to cash in by purchasing stock at discounted prices with the assumption the value will increase in the future.
"You cannot put too much weight on it. You need it to be within the framework of a consensus of negative indicators happening concurrently, and we're not seeing that," Todd Walsh, chief technical analyst of Alpha Cubed Investments, told Daily Mail. "Not only that, but the death cross that we're seeing on the Dow Jones, it looks more like a touch-and-go. It looks as though it is just touching and going up, rather than plunging."