How to trade the S&P 500 'death cross' formation

Traders work on the floor of the New York Stock Exchange.
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First it was Apple, now the S&P 500 has followed, forming a death cross pattern on a daily basis for the first time in four years.

A death cross occurs when the short-term moving average of a security or an index pierces below the long-term trend, in this case the 50-day moving average breaking through the 200-day moving average—a sign of fading momentum and possibly more short-term losses ahead.

"We have been progressively more cautious the last three months moving into this decline," said Louise Yamada, managing director at Louise Yamada Technical Research Advisors.

The technical strategist explains that daily short-term crosses are often viewed as yellow lights, but they are not as relevant as the long-term crosses, which often carry greater significance for market watchers.

On a weekly basis, a measure of intermediate-term strength, the death cross is also in place for indexes like the S&P 500, Dow and the NYSE composite, a progressive step to trouble, according to Yamada.