Traders work on the floor of the New York Stock Exchange.

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The Nasdaq composite spooked investors on Monday after forming a death cross, a trading pattern that shows a decline in short-term momentum and is often a precursor to future losses.



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.

In the past month, similar chart patterns formed in the S&P 500, Dow and small-cap Russell 2000, but the Nasdaq avoided a death cross formation until Monday.

Among the major averages, the domino effect was progressively felt as the drop in one index preceded the next.

"The Dow Jones Industrial Average triggered the sell signal in August, followed by the S&P 500 then Russell 2000," Brean Capital head of equity trading Roberto Friedlander wrote Monday, alluding to the deterioration in the market.

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Friedlander explains that the Nasdaq's death cross formation, along with the three other indexes, marks the first time since 2011 that "all four horseman of the apocalypse" were in a death cross simultaneously.

Here's how Brean Capital is trading this technical development: