Investors frequently search for trends and signals that may help them anticipate the future movements of stocks or indexes. Among the various technical indicators, “golden crosses” and “death crosses” are prominent tools used by traders aiming for an advantage in the market.

What is a Golden Cross?

A golden cross occurs when a short-term moving average crosses above a longer-term moving average. Typically, traders focus on the 50-day and 200-day moving averages to identify this crossover. A golden cross is viewed as a bullish signal, suggesting that an equity or index may experience an upward trend. Additionally, the longer-term moving average often serves as a support level during this period.

Understanding Death Crosses

Conversely, a death cross occurs when a short-term moving average dips below a longer-term moving average. This situation is generally considered a bearish indicator, forecasting a potential decline in the value of an equity or index. Just like during a golden cross, the long-term moving average tends to act as a resistance level in a death cross scenario. Furthermore, the validity of both signals increases with higher trading volume accompanying the crossover.

The Debate Over Indicator Effectiveness

While the effectiveness of these indicators can be subject to debate, evidence suggests that golden and death crosses may offer insights into both short- and long-term market trends. For instance, last week, Apple Inc. (AAPL) experienced a death cross when its 50-day moving average fell below its 200-day average, which may indicate further losses in the near future.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.