Fasten Your Seat Belts

The entire financial and business world has now learned the two most important words:  Hindenburg Omen (HO).  We have written about this indicator extensively, with trading floors, chat rooms and even the mainstream press doing articles.  Until now, the confirmation of the indicator has been in dispute.  That will now change.

In today's trading, which is also a triple witching day, the confirmation is now a done deal.  Ironically, this is quite possibly the last time this indicator will be useful or viable.  However, if you choose to ignore it, well then be prepared to take a major hit to your financial fortunes.

Prominent wall street analysts such as Joseph Battapaglia, have derided this indicator.  Of course, Mr. Battapaglia is well know for beating the internet drum all the way to the top and then to the bottom of the crash in technology stocks.  With all due respect Joe, haven't you learned your lesson?

Mr. Battapaglia is hardly alone in his disgust.  In fact, the major brokerage houses rarely, if ever issue sell recommendations.  Abby Joseph Cohen, a perma-bull if there ever was one, never met a stock or market she didn't like.  Never has thought that any financial asset was overvalued.  Dear Abby, perhaps you should write an advice column?  Naw, it's been done.  Never mind!

Now that the HO has made the Wall Street Journal, CNBC, The Drudge Report, Huffington Post and Wikipedia, it will become too well known to be useful ever again.  That's how technical analysis works.  The minute everyone knows is the very moment that no one can benefit. 

For investors, the key here is survival.  Safety can be found in very few places:  Gold, the Greenback, high quality bonds, high quality utilities and oil companies.  But, it would be far more prudent to let this impending waterfall decline fully express itself.  There ought to FAR better entry points.

In the case of Gold, for example, consider the likelihood that the mega hedge funds are probably being hit with margin calls and will need to sell the only liquid assets they have.  Thus, it is imperative that position sizes be kept fairly small, temporarily. 

In addition, most people are long a variety of financial assets such as real estate and employment.  These, too, will affected.  If you're so inclined, a strategy of hedging your balance sheet is advisable.  My personal preference is to place some portion of your portfolio in inverse ETFs such as FAZ and TWM.  But, be aware that these are NOT for the feint of heart and will subject you to wild swings and increasing volatility.

Investors need to consider the emotional impact of watching their net asset values bounce around like a pinball machine.  No point in subjecting yourself to what is sure to be a tremendous amount of angst.

Marko's Take