Friday, August 27, 2010

2x Hindenburg Omens since 12 August 2010 foreshadow an imminent stock-market crash

SHOOT: From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen is 77%, with stock market corrections predicted to start within the next forty days. On June 16th 2008 on this blog and via email I warned of an imminent financial collapse.  Then this happened, and it started happening in July, recovered slightly but was fully manifest by September 16 2008.

We also saw a Flash Crash on May 6 2010, something Wiki describes as such:
The same conditions/signals are back right now, in fact we've seen not one but two signals and just missed a third in just the last 2 weeks of August 2010.
the Dow Jones Industrial Average suddenly dropped almost 1000 points. Starting at 2:43 pm Eastern Time, the DJIA began to sell off at a furious pace with high volume. At 2:48 pm, the DJIA hit a low of 9872.57. Currently (May 7, 2010), there is not a consensus on what caused this unusual and record breaking drop of almost 1000 points on that day.[21] The session was also a record breaking volume day, coming in at the 6th highest trading day with volume of 5,556,775,277 shares.[13] A preliminary report on May 18 to a Joint Advisory Committee of the CFTC and SEC suggests "a failure in liquidity"[22] and stressors of that liquidity[23] as possible causes for the crash.

What signal am I referring to?  It's called a Hindenburg Omen.  An Omen has about a 25% chance of coming true, which means a 75% of it being a false alarm.  If you consider a stock market crash as economic death, and you consider how serious the last crash was [we're still talking 'recovery' 2 years later], then a 25% risk is significant.  My advice: if you have any money in the markets get it all out now.  For background, check this out:
By Steven Russolillo

The Hindenburg Omen reared its ugly head late last week, signaling more doom and gloom as stocks plod along amid the dog days of summer.

The Omen, a technical indicator which uses a plethora of data to foreshadow a stock-market crash, was tripped again on Friday, marking the second time since Aug. 12 it has occurred. (It also came close on Thursday, but one of its criteria fell short.)

The latest trigger has prompted the Omen’s creator, Jim Miekka, to exit the market. “I’m taking it seriously and I’m fully out of the market now,” Miekka, a blind mathematician, said in a telephone interview from his home in Surry, Maine. “I would’ve probably stayed in until the beginning of September,” depending on how the indicators varied. “That was my basic plan, until the Hindenburg came along.”

The Omen has been behind every market crash since 1987, but significant stock-market declines have followed only 25% of the time. So there’s a high likelihood that the Omen could be nothing more than a false signal.

But that isn’t stopping Miekka from taking any chances, especially as September, typically the market’s worst-performing month, sits only one week away.

“It’s sort of like a funnel cloud,” he said. “It doesn’t mean it’s going to crash, but it’s a high probability. You don’t get a tornado without a funnel cloud.” He added he’s not currently shorting anything, although he may look to short Nasdaq stock index futures in the next few weeks, “depending on how the technicals go.”

Despite the ominous forecast, there are some glimmers of hope. Miekka doesn’t expect to sit on the sidelines for very long. In fact, Miekka, who is an avid target shooter despite being blind, is looking at put volumes and various moving averages that will offer clues of when he will start buying again.

“With what we have now, I think it’s possible we could get a 20% decline going into the fall,” Miekka said. “But I would expect some type of selloff and be buying at a lower price.”

(Tomi Kilgore contributed to this post)

From Forbes:

Mixed Signals And The Hindenburg Omen


There’s been a ton of buzz about the Hindenburg Omen, both here at Forbes and in other news coverage and on trader oriented blogs over the last three weeks. To refresh your memory, that’s the technical indicator that supposedly portends a stock market crash, and it’s saying that comes in September. James Miekka, the mathematician who dreamed it up, has become an overnight celebrity.

That so many people are willing to take an scary market omen seriously is just a sign of the general uneasy sentiment. But there are a lot of mixed signals.

The Hindenburg Omen, which takes into account a bunch of market triggers, may not mean much in the broader scheme. It has accurately predicted major market declines since the 1987 crash but then again it has predicted many more declines were coming than actually came to pass. After weeks of stories and blog accounts confirming the Omen had emerged, tripping its signals, some columnists this week question whether that was actually true or even whether, if true, those signals added up to something dire.

It is true that bad economic data is putting a dour mood on stock investors. The Dow Jones industrial average has wobbled up and down, 50 points here, 100 points there, all summer.

But the volatility of the Standard & Poor’s 500 index, tells a different tale, according to Interactive Brokers. It is at about the level it was in February (then, 26.50 on the VIX) and well down from its recent peak in May (when it hit 45.48). It is also about where it was a year ago. During the worst of the financial crisis, the VIX was up near 80.

If a market collapse was truly in the works, says Interactive’s senior market analyst Andrew Wilkinson, you’d expect the VIX to be skyrocketing higher. “While recent stock market action has been bearish, investors appear to accept the cooling-off but don’t expect a magnanimous collapse,” Wilkinson says. The relatively sanguine VIX is “the market saying there isn’t another shoe dropping.”

On the other hand, trading volumes are in decline — this month fewer than 6 billion shares are trading hands daily in the U.S. equities market for the first time since June 2007 — and that tends to increase volatility somewhat. And investors seeking perceived safety have pushed the price of gold to its highest price since July and have ignited a rally in Treasury bonds, pushing yields to all-time lows in some cases.

Federal Reserve Chairman Ben Bernanke is scheduled to speak Friday at an annual gathering of the central bank in Jackson Hole, Wyoming. He is expected to give his outlook on the U.S. economy and possibly hint at steps he plans to take to prevent it from sliding into the feared double dip recession or worse.

After that, investors have a little over one week before returning from here to a post-Labor Day market, when we’ll all mark the second anniversary of the Lehman Brothers meltdown. Question is whether buyers will show up in September or only sellers, Omen or not.

From TechTicker:
Complex and esoteric even in the world of technical indicators, the Hindenburg Omen is triggered when the following occurs, Zero Hedge reports:

-- The daily number of NYSE new 52-week highs and the daily number of new 52-week lows must both be greater than 2.2% of total NYSE issues traded that day.

-- The NYSE's 10-week moving average is rising.

-- The McClellan Oscillator (a technical measure of "overbought" vs. "oversold" conditions) is negative on that same day.

-- New 52-week highs cannot be more than twice the new 52-week lows. This condition is absolutely mandatory.

These criteria have been hit twice since Aug. 12, prompting Miekka to get out of the market entirely, The WSJ reports. Judging by the recent market action, many others are following suit -- or at least moving in the same direction.

Worry List Lengthens

As Henry and I discuss in the accompanying clip, there are a lot of reasons to be worried right now that having nothing to with The Hindenburg Omen, the "Death Cross", Mercury being in retrograde or myriad other indicators cited by market pundits of various stripes.

More fundamental reasons to be concerned include:

It's the Economy, Stupid: This week's weak durable goods and home sales reports are just the latest in a string of desultory data. In sum, the macroeconomic data strongly suggest the job market isn't going to improve anytime soon. And if the job market doesn't improve, there's really not much hope for a turnaround in housing, consumer sales or anything else really. Oh, and the stock market is still expensive on a cyclically adjusted P/E basis, making it more vulnerable to an economic slowdown.

Unusual Uncertainty: On July 21, Fed chairman Ben Bernanke testified on Capitol Hill that the Fed's forecast called for real GDP growth of 3%-3.5% for 2010 and 3.5%-4.5% in 2011 and 2012. Less than a month later, the Fed announced plans to buy Treasuries again (a.k.a. "QE2") and, as The WSJ reported this week, there's a tremendous amount of dissention within the Fed about the 'right' policy prescription.

Financial Follies: Whether it's renewed concerns about Europe's sovereign debt crisis, more U.S. bank closures or reports of commercial developers walking away from properties, it's clear the problems in the financial system were not resolved by various and sundry bailouts and government stimulus ... not by a long shot.

Good Politics vs. Good Economics: S&P's downgrade of Ireland's debt and Greece's revenue shortfall show the short-term perils of the austerity measures that have swept Europe. But promising to cut government spending and slash deficits appears to be a winning political strategy in America right now. Certainly, it's a key message of Republican and Tea Party candidates, who appear to have the momentum heading into the November mid-term elections. But if Europe's 'PIIGS' are any example, gridlock might not be so "good" for the economy this time around, much less the financial markets.

More: In June 2008 I pointedly referred to the Hindenburg Omen

Recent occurrences

August 12, 2010: The Omen's creator, Jim Miekka, considered the Omen officially triggered on this date with 92 and 81 new 52-week highs and lows, respectively. The McClellan Oscillator was a negative -120.03 and the 10-week NYSE moving average was rising; the market closed above its open of 50 days prior (May 27). [5]. In the ensuing week, the Omen narrowly missed confirmation twice (August 13 and 19).

August 20, 2010: According to the Wall Street Journal, the omen was confirmed on Friday, with 83 new 52-week highs and 95 new 52-week lows on the NYSE. The McClellan Oscillator was a negative -106.46 and the 10-week NYSE moving average was rising; the market closed above its open of 50 days prior (June 11). [6]

August 24, 2010: 166 New Lows, 87 new Highs, McClellan Oscillator was negative, but the 10 week average began to fall. (Non-Confirmation.) (Although the 12 week average is still positive.)

August 25, 2010: 150 New Lows, 90 new Highs, McClellan Oscillator was negative, but again the 10 week average was falling (Non-Confirmation.) (Although the 12 week average is still positive.)

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