Death Cross is Overrated
Igor Manukhov - Apr 29, 2025
When the 50-day moving average crosses below the 200-day moving average (a "death cross"), it usually means it's too late to sell.
Crises tend to sell a lot of newspapers. Earlier this month, many financial news outlets made a big deal about the so-called death cross – when the 50-day moving average (red line on the chart below) crosses below the 200-day moving average (purple line). Apparently, we are supposed to panic when this happens, hence the name.
I have highlighted the most recent death cross with a vertical blue line. Notice how far the price had already fallen from the peak (hint: by 12%).
I looked back over 60 years and counted how many times a death cross occurred and how many times it worked (meaning the market declined further after the death cross).
It turns out that, since early 1960s, we have had 30 death crosses and only 7 of them worked. That is a success rate of about 23%. Most of the successful instances occurred during secular bear markets (think tech bubble, 2008 etc.). What we are dealing with is a cyclical bear market (i.e., short term bear market, think 1987, 2020 etc). The death cross is even less accurate and less useful during cyclical bear markets. If anything, most of the time when you see a death cross, it means that the market bottom is not far away.
