Is the Fourth Quarter of 2024 Mirroring 2021?
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Originally posted to Market Misbehavior
Is the Fourth Quarter of 2024 Mirroring 2021? Hindenburg Omen Alert!
As we approach the end of 2024, an intriguing question arises: Is the fourth quarter of 2024 shaping up to be very similar to that of 2021? Today, we’ll explore the current market conditions and draw parallels to those experienced at the close of 2021. Back then, we witnessed a steady low-volatility bull market that peaked dramatically, leading to a significant downturn in 2022. Let’s delve into the present market landscape, compare it to 2021, and identify key indicators to watch as we move toward year-end.
Drawing Comparisons: 2024 vs. 2021
To start, it’s essential to understand why comparing 2024 to 2021 is relevant. Both periods exhibit striking similarities in market behavior. In 2021, the market enjoyed a phase of low volatility and consistent upward trends, supported by strong performance across major indices. Fast forward to 2024, and we’re observing a comparable pattern. Prices are consistently above upward-sloping moving averages, particularly the 5, 13, 21, and 34-week exponential moving averages. These averages have been trending upward throughout 2024, much like they did in 2021, signaling a stable and fairly predictable market environment.
Courtesy of StockCharts.com
Understanding the Hindenburg Omen
A critical tool in our analysis is the Hindenburg Omen, an indicator designed to identify potential market tops. Although we discussed this indicator earlier in the year, it’s signaling again, warranting a closer look. The Hindenburg Omen requires specific criteria to be met at least twice within a month to suggest a likely major market peak. Currently, we’re seeing initial signals, but we’re awaiting confirmation to ensure accuracy.
To validate the Hindenburg Omen sell signal, creating a pattern very similar to what we saw in December 2021 before the great bear market of 2022, we would need to see an expansion in new 52-week lows. The creator of the Hindenburg Omen, Jim Miekka, found that at major tops there were often a healthy number of new 52-week lows AND new 52-week highs, and that this bifurcation of market performance was a tell-take sign of a likely market top.
Market Trend Model Insights
Let’s take a closer look at the S&P 500’s weekly chart, part of what I refer to as my “market trend model.” This model employs multiple time frames and exponential moving averages on a weekly basis to provide a comprehensive analysis. Visually, 2024 mirrors 2021 closely. The upward trends across the 5, 13, 21, and 34-week exponential moving averages indicate a low-volatility, consistent uptrend in both years. This pattern is highly recognizable to market analysts and investors alike.
Technical Comparisons and Future Outlook
Technically speaking, 2024 aligns closely with 2021. Long-term trend indicators remain bullish, reflecting similar patterns in both medium-term and short-term models. However, the critical aspect to monitor is the potential for a trend reversal. In 2021, despite the strong close, we began to see signs of reversal early in 2022, leading to a significant market downturn.
As we stand in late November 2024, the Hindenburg Omen is flashing an initial sell signal. It’s crucial to watch for a second confirmatory signal between now and December. Should the trend reverse, we might see a cascade starting with the short-term model turning negative, followed by impacts on the medium-term and eventually the long-term models.
Join the Conversation
In summary, 2024 is unfolding similarly to 2021, with potential indicators suggesting we might be nearing a major market top. As we move towards the end of the year, keep an eye out for additional Hindenburg Omen signals to confirm this trend. What are your thoughts on the Hindenburg Omen signaling a sell as we approach the end of November 2024? Are you optimistic about the S&P and NASDAQ’s performance for the year, or do you believe we should exercise greater caution? Share your insights in the comments below—I’d love to hear your perspective!
About This Week’s Author
David Keller, CMT is a past president of the CMT Association and a member of the Technical Securities Analysts Association San Francisco and the International Federation of Technical Analysts. He is now President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research and consulting firm focused on helping investors manage risk through market awareness.
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Originally posted on December 16th, 2024
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