Moneycontrol
Feb 12, 2018 08:41 AM IST | Source: Moneycontrol.com

More than 1000 stocks on BSE witness ‘Death Cross’ on charts; more pain likely?

Death Cross would only suggest that a shift in trend is taking place which could help traders to pick their bets accordingly.

Kshitij Anand @kshanand

There is a very famous saying in the technical parlance – the trend is your friend. Well, for some stocks the trend which was on the upside last year might have changed the course.

One of the measures to understand the movement of the trend is to analyse moving averages. When stocks long-term moving average, say 200-days moving average (DMA) crosses above its short-term moving average i.e. 50-DMA signifies a bearish crossover.

In the technical dictionary, this term is referred to as ‘Death Cross’ which results from stocks long-term moving averages breaking above its short-term moving average. This trend indicates that a bear market is on the horizon. If volumes activity picks up will confirm the trend on either side.

The point of intersection where 200-DMA breaks above 50-DMA is known as Death cross. More than 1000 stocks on the BSE have witnessed this bearish crossover on charts recently which include prominent names like Eicher Motors, Bosch, Hero MotoCorp, Dr. Reddy’s Laboratories, Shriram City Union, BEML, PVR, PNB Housing, Lupin, Aurobindo Pharma etc. among others.

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For Example, Eicher Motors 50-DMA is placed at 28,636 which is lower than its 200-DMA which stands at 29,558 according to the closing price as on 9th February.

However, before shorting the stock or going bearish analysts advise traders to understand other parameters. Death Cross would only suggest that a shift in trend is taking place which could help traders to pick their bets accordingly.

Volumes have a bigger role to play in Death Cross. If the movement in price is also accompanied with higher trading volumes translates into more conviction in movement or shifting of the trend from bullish to bearish.

The Golden Cross is just opposite of the death cross. It is formed on the charts when the short-term, 50-day moving average moves above the long-term, 200-day average. Formation of a Golden Cross is associated with positive or bullish momentum.
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