Despite investors generally looking forward to the Santa Claus Rally toward the end of every year, and the overall state of the stock market this December indicates the ending of 2024 will be strong, some risks may have accumulated in recent trading.
In an X post published on the afternoon of December 10, veteran trader Peter Brandt pointed out that a significant bearish signal has appeared on the chart of one of the most important indices in the U.S.: the Dow Jones Industrial Average (DJIA).
Brandt identified the so-called Three Black Crows pattern in the DJIA chart while simultaneously pointing out that, in this case, the murder was extended to four.
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Though the veteran trader offered no additional analysis of the signal in the tweet, the indicator is generally seen as a sign that the ongoing bullish trend will reverse. Indeed, Three Black Crows land on a chart when three consecutive long-bodied candlesticks opened within the ‘real body’ – the wide part of the candle – and closed lower.
Technical analysis hints at the future of U.S. benchmark index
The Dow Jones Industrial Average, for its part, started a 3.68% rally from 43,268.94 on November 19 to 44,860.31 on November 6, entered an indecisive phase, and had four consecutive black crow closes between December 5 and December 10, which took it 45,014.04 to 44,247.83.
As this bearish murder is a visual indicator, it is frequently used in conjecture with other technical analysis (TA) tools, and these, per the data retrieved from TradingView on December 11, indicate there may be little doom and gloom this holiday season.
Specifically, the overall rating provided by the stock analysis platform recommends traders invest in the index, with moving averages (MA) oscillating between ‘buy’ and ‘strong’ buy when extracted from the last 24 hours, as well as the last 7 and 30 days.
However, oscillators give some cause for caution as they read ‘sell’ when based on the last 24 hours and 7 days and turn merely ‘neutral’ on the last 30 days.
The bull case for stocks leading into 2025
Indeed, considering the general attitude toward the stock market among investors and analysts in the final month of 2024 and DJIA’s important role within it, the bearish signal might just be a sign of ephemeral headwinds.
For example, Fundstrat’s Tom Lee – one of the best-regarded analysts on Wall Street – forecasted a magnificent climb for U.S. stocks in the first half of 2025 with the S&P 500 – the other major benchmark index – even hitting 7,000 points by the middle of the year.
Though the analysis also estimated that the second half of next year would feature a large pullback, such an eventuality could hardly be linked to the four Black Crows showing on the DJIA chart on December 11, 2024.
The bear case for stocks leading into 2025
Still, investors and analysts have been wary of a potential crash for over a year, with some estimating that risks have been piling up and that the entire prevalent bull market is little more than a house of cards.
Several voices have also been warning of specific, looming events triggering, at the very least, a correction and, at worst, a recession. Jim Cramer, for example, cautioned that the markets have not properly accounted for the danger that the Federal Reserve will halt interest rate cuts and warned this could generate tempestuous headwinds.
For his part, Robert Kiyosaki, the prominent investor and author of the best-selling personal finance book ‘Rich Dad Poor Dad,’ again took on the role of a doomsayer on December 9 when he advised his followers that a crushing crash was coming.
Still, it is worth pointing out that Kiyosaki’s track record of predicting the start of an economic crisis has been far weaker than his forecasts that assets like gold and Bitcoin (BTC) are bound for strong surges.
Ultimately, though it, at press time, appears unlike the Three Black Crows and their fourth companion are heralds of an imminent recession, they still represent a warning sign investors should keep an eye on.
Featured image via Shutterstock
