Just when we thought we had heard the last of the dreaded, but also much maligned, Hindenburg Omen, comes yet another sighting in Wednesday's trading according to expert Robert McHugh (https://www.technicalindicatorindex.com/Default.asp). In a short email sent out to his mailing list:
"Stocks generated a new confirmed Hindenburg Omen Wednesday, December 15th, an official signal with the second H.O. observation in the past two days. This Omen has appeared before all of the stock market crashes, or panic events, of the past 25 years. All of them. No panic sell-off (greater than 15 percent) occurred over the past 25 years without the presence of a Hindenburg Omen. Another way of looking at it is, without a confirmed Hindenburg Omen, we are pretty safe. But we have an official Hindenburg Omen as of December 15th, 2010, so we are not safe."
A reasonably thorough discussion of the complexities and calculations of the omen were discussed here: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
The Nasdaq is now at a 3 year high while the Dow Jones Industrial Average, Standard & Poor's 500 and Russell 2000 are at clear 2 year highs. Yet, over the past 3 trading days, NYSE new 52 week lows have been astounding high. The exact number depends on whether you look at the Wall St. Journal or the Yahoo numbers, but new lows ran 2% to 3% of total issues traded each day. It would be normal to have 1/10th of those levels!
While we're looking at our second favorite zepplin, why not check the solar calendar? According to NASA, a partial solar eclipse occurs on January 4, 2011. The last eclipse, occuring early in the summer was total.
Whether a partial eclipse counts in the scheme of astro-harmonics remains an open question. The connection between solar eclipses, lunar cycles and stock market crashes was discussed more fully here: http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
So, add to that the horrible sentiment picture as described in these recent "Takes": http://markostake.blogspot.com/2010/12/psychology-of-investing-part-2.html, and one could pretty reasonably conclude that a helluva bear market is dead ahead.
As to Gold and the Gold Bugs Index (HUI), it really appears that a retracement to the 200 Day Moving Average (DMA) is upon us. That would be another 10% downside for the metal and about 15% for the precious metal stocks. Silver, if it should correct to its 200 DMA, would have about 30% exposure.
The prospect of a more significant drop in the precious metals sector is extremely remote in light of rapidly building global inflation pressures. This pullback, which ought to be quite violent but short to scare everyone, should be viewed as a terrific buying opportunity.
For now, investors ought to stay as liquid as possible, even though safe places to park money offer no return. Better no return than a sharply negative return.
Marko's Take
Showing posts with label Hindenburg Omen. Show all posts
Showing posts with label Hindenburg Omen. Show all posts
Thursday, December 16, 2010
Tuesday, November 16, 2010
Hindenburg Re-appears
A major mystery for me this summer has been the strange levitation of the stock market, despite an endless list of reasons for it to get crushed. Not only does the market have to contend with a shrinking money supply, a failing financial system, crumbling European bailouts and an inept Federal Reserve, but it also seems that the entire galaxy is aligned against it. For more on the Hindenburg Omen, click here: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
By now, the market should have begun its catatrophic descent. Why hasn't it? My guess is that all the hot air coming out of politician's yaps, coupled with the aggressive market support employed by the Federal Reserve and Helicopter Ben, has temporarily put a delay on what I still contend is inevitable. The best efforts of the Fed will not work. Here's why: http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
Today's trading witnessed a very Hindenburg-like day. According to Yahoo Finance, there were 136 new highs and 164 new lows among nearly 4,000 issues traded. That would provide the initial trigger for the Hindenburg. As noted in prior pieces, there are a myriad of filters, but honestly, one needs no filter other than a gas mask to see that the "House Of Cards", known as the U.S. Financial System is on the verge of collapse.
But that's not all. Nearly every asset market has gotten incredibly and feverishly over-extended, including precious metals and mining stocks. We have discussed other technical indicators which are also very ominous, and those are discussed here: http://markostake.blogspot.com/2010/09/lets-get-technical.html, and http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
Add to that the rising inflation pressure showing up in prices at WalMart and other retail stores, plus in today's report on the Producer Price Index. Creeping inflation will put a cap on the Fed's ability to perform it's levitation tricks or a full blown hyper-inflation episode will ensue even sooner. It, too, is inevitable, once monetary velocity picks up.
So, what's an investor to do? Go To Cash! The only investments likely to survive this assault will be the very oversold U.S. Dollar and very short-term Treasuries. Yeah, the returns suck, but even 0% is better than losing 20% or more in a fairly short period of time.
Unlike the meltdown of 2008, which, too, was forsaged by a series of Hindenburg Omens, this one will not be an exact repeat. This time, Gold, Silver, Commodities and precious metals mining stocks ought to hold up much better. A correction to their 200 Day Moving Averages would be the most likely scenario, as discussed in this recent "Marko's Take": http://markostake.blogspot.com/2010/10/correct-me-if-im-wrong.html.
Better to wait for another entry point, well below current levels, than to sweat it out in a volatility spike down that may just give you a heart attack. And, the bargains that will become available will be well worth waiting for.
So, how long may stocks go? Obviously, no one knows, but a Dow Jones Industrial Average of between 6,000 and 8,000 would seem to be a logical target occuring early in 2011.
It's going to be a very, very cold winter for most investors. Store lots of blankets!
Marko's Take
By now, the market should have begun its catatrophic descent. Why hasn't it? My guess is that all the hot air coming out of politician's yaps, coupled with the aggressive market support employed by the Federal Reserve and Helicopter Ben, has temporarily put a delay on what I still contend is inevitable. The best efforts of the Fed will not work. Here's why: http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
Today's trading witnessed a very Hindenburg-like day. According to Yahoo Finance, there were 136 new highs and 164 new lows among nearly 4,000 issues traded. That would provide the initial trigger for the Hindenburg. As noted in prior pieces, there are a myriad of filters, but honestly, one needs no filter other than a gas mask to see that the "House Of Cards", known as the U.S. Financial System is on the verge of collapse.
But that's not all. Nearly every asset market has gotten incredibly and feverishly over-extended, including precious metals and mining stocks. We have discussed other technical indicators which are also very ominous, and those are discussed here: http://markostake.blogspot.com/2010/09/lets-get-technical.html, and http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
Add to that the rising inflation pressure showing up in prices at WalMart and other retail stores, plus in today's report on the Producer Price Index. Creeping inflation will put a cap on the Fed's ability to perform it's levitation tricks or a full blown hyper-inflation episode will ensue even sooner. It, too, is inevitable, once monetary velocity picks up.
So, what's an investor to do? Go To Cash! The only investments likely to survive this assault will be the very oversold U.S. Dollar and very short-term Treasuries. Yeah, the returns suck, but even 0% is better than losing 20% or more in a fairly short period of time.
Unlike the meltdown of 2008, which, too, was forsaged by a series of Hindenburg Omens, this one will not be an exact repeat. This time, Gold, Silver, Commodities and precious metals mining stocks ought to hold up much better. A correction to their 200 Day Moving Averages would be the most likely scenario, as discussed in this recent "Marko's Take": http://markostake.blogspot.com/2010/10/correct-me-if-im-wrong.html.
Better to wait for another entry point, well below current levels, than to sweat it out in a volatility spike down that may just give you a heart attack. And, the bargains that will become available will be well worth waiting for.
So, how long may stocks go? Obviously, no one knows, but a Dow Jones Industrial Average of between 6,000 and 8,000 would seem to be a logical target occuring early in 2011.
It's going to be a very, very cold winter for most investors. Store lots of blankets!
Marko's Take
Thursday, October 21, 2010
Correct Me If I'm Wrong
The long-awaited, overly-predicted correction in Gold, Silver and mining stocks has now begun. After the smash on Tuesday for 30 bucks in Gold we have what appears to be a continuation pattern with today's further drop of additional drop of another $20. What's a "continuation pattern" you ask? A highly technical term? Nah, it means a top below a top followed by a new low beneath a low. That is the initial condition for establishing a new downtrend.
The correction ought to be sharp but not very deep. Gold's 200 Day Moving Average (DMA), which ought to contain the decline, is now at $1,200, suggesting additional downside of about 10%.
The Gold Bugs Index (HUI) has now dropped back below 500, after reaching a false breakout high of 535. In just a few short days, miners have dropped by nearly 10%. The HUI's 200DMA is above 450, which ought to cap further reactions to another 10%. Therefore, the correction is half over already. Get ready for a terrific entry point!
In recent news, as predicted in this column, China has suspended exports of rare earth metals. For a great play in rare earth metals, we have discussed the merits of Avalon Rare Earth (AVARF) http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
As far as the stock market goes, the surprisingly violent bear market rally that has taken place all summer continues, but ultimately all markets must obey "The Law of Gravity". http://markostake.blogspot.com/2010/10/markets-to-obey-law-of-gravity.html.
The downside leadership in the coming stock market crash will undoubtedly be the financial sector. The Philadelphia Banking Index (BKX) has continually under-performed every market sector and with economic conditions deteriorating, an inevitable banking crisis looms directly ahead. Despite all the efforts of our friends at the Federal Reserve to pump out money, it appears that this privately held group has now been relegated to "toothless tiger" status http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
But what about those great earnings reports? What about the coming Republican take-over of Congress? Won't these matter? No! These are old news and already factored in and discounted. The markets are looking 6 months ahead and, believe me, they DON'T like what they see. Markets anticipate. Once news is understood by the masses, it's WAY too late to matter!
So while that dirigible known as Hindenburg continues to levitate on a cushion of hot air from politicians, it has sprung a whoppin' leak http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html. Of course, the Omen isn't always right, but why take a chance on getting wiped out?
What's an investor to do here? Easy. Hold cash and wait for the correction in commodities, metals and mining stocks. Then, get ready to get rich as the mother of all bull markets shifts into turbo-charged high gear.
Marko's Take
The correction ought to be sharp but not very deep. Gold's 200 Day Moving Average (DMA), which ought to contain the decline, is now at $1,200, suggesting additional downside of about 10%.
The Gold Bugs Index (HUI) has now dropped back below 500, after reaching a false breakout high of 535. In just a few short days, miners have dropped by nearly 10%. The HUI's 200DMA is above 450, which ought to cap further reactions to another 10%. Therefore, the correction is half over already. Get ready for a terrific entry point!
In recent news, as predicted in this column, China has suspended exports of rare earth metals. For a great play in rare earth metals, we have discussed the merits of Avalon Rare Earth (AVARF) http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
As far as the stock market goes, the surprisingly violent bear market rally that has taken place all summer continues, but ultimately all markets must obey "The Law of Gravity". http://markostake.blogspot.com/2010/10/markets-to-obey-law-of-gravity.html.
The downside leadership in the coming stock market crash will undoubtedly be the financial sector. The Philadelphia Banking Index (BKX) has continually under-performed every market sector and with economic conditions deteriorating, an inevitable banking crisis looms directly ahead. Despite all the efforts of our friends at the Federal Reserve to pump out money, it appears that this privately held group has now been relegated to "toothless tiger" status http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
But what about those great earnings reports? What about the coming Republican take-over of Congress? Won't these matter? No! These are old news and already factored in and discounted. The markets are looking 6 months ahead and, believe me, they DON'T like what they see. Markets anticipate. Once news is understood by the masses, it's WAY too late to matter!
So while that dirigible known as Hindenburg continues to levitate on a cushion of hot air from politicians, it has sprung a whoppin' leak http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html. Of course, the Omen isn't always right, but why take a chance on getting wiped out?
What's an investor to do here? Easy. Hold cash and wait for the correction in commodities, metals and mining stocks. Then, get ready to get rich as the mother of all bull markets shifts into turbo-charged high gear.
Marko's Take
Thursday, August 26, 2010
How We'll Know If Hindenburg Omen Is Wrong
Yesterday, a 4th dirigible was seen flying the not-so-friendly skies. According to Robert McHugh, who seems to be THE expert in the now famous Hindenburg Omen, we need 5 to get a "cluster". But, let's take a deep breath, reduce our hyperventilation, and examine what signs we might look for that would suggest that this entire exercise is nothing but a blip on the radar screen.
One key factor is time. The "crash window" is open, but won't stay open for very long. If the financial markets don't implode pretty soon, then this entire exercise will become, as Dee Dee Myers used to say, "non-operational". Ms Myers, who had the tremendous misfortune of explaining away Mr. Clinton's ongoing non-truths, had to constantly change stories as new facts came to light. But, we can discuss that at another time.
If the Dow Jones Industrial Average (INDU) remains near or above 10,000 through the end of September, at the LATEST, I'd say that it would be time to go back to the lab.
Key downside levels to watch would be roughly 9,500 on the INDU, 1,025 on the Standard & Poor's 500 (SPX) and 2,100 on the Nasdaq Composite (IXIC). A break above 10,500 on the INDU, 1,100 on the SPX or 2,300 on the IXIC would suggest that the markets are probably poised to rally more.
As far as Gold goes, a break above $1,250 would suggest that an upside explosion could be at hand. Contrarily, a penetration below $1,200 would be bearish, short-term, and probably be followed by a sharp, albeit temporary, correction.
Other signs that this whole scenario is incorrect would include rising long-term interest rates or a falling Dollar. In the instance of a deflationary scare, we should see a strong dollar and strong bond market. The key industry group to watch is the financial stocks. They are currently poised to be leaders on the downside. The markets CANNOT rally without at least a some upside strength in this group.
Do we care about earnings or economic statistics? NO! They are backwards looking and have ZERO predictive value. In fact, any decline is likely to take place against a backdrop of at least decent news. Like a sleight-of-hand magician, markets are very expert at having investors look up when investors should be looking down. Look at my pretty assistant!
It's important to note, that as of this writing, not ONE of these possible contra-indicators is in place. In fact, there is only one piece of evidence that the scenario is not imminent. The yield curve is steep and positively sloped, meaning that the difference between long-term rates and short-term rates is high. The reason this is important is that a steep yield curve creates a very profitable lending environment for banks and other financial institutions which borrow short or cheap and lend long or dear. Since banks aren't lending, this may not be all that signficant.
The slope of the yield curve determines how profitable the financial sector will be prospectively. And, as noted above, the health of this sector is important to the direction of markets and the entire global financial system. It also has very high predictive value in assessing the prospects for economic growth.
Another sign of strength would be felt in the commodities markets outside of the precious metals, which are acting as currency right now. Keep an eye on oil, food and key industrial metals such as Copper. Dr. Copper, as it's known, is a better economist than most Nobel Laureates. Doc Copper has "Marko's Take" in his waiting room. As of today, all the commodities are either weak and weakening or looking very toppy.
So, keep on an eye on the checklist that might suggest that the dark clouds are nothing more than a short thunderstorm. The forecast is for torrential rains, but predicting the market is not much more of a precise science than the weather. Even if it doesn't rain, don't forget your umbrella.
Therefore, unless the conditions for a re-assessment are met, as described above, investors should continue to hold lots of cash, use inverse ETFs for hedging and profits, and wait out the storm.
Marko's Take
One key factor is time. The "crash window" is open, but won't stay open for very long. If the financial markets don't implode pretty soon, then this entire exercise will become, as Dee Dee Myers used to say, "non-operational". Ms Myers, who had the tremendous misfortune of explaining away Mr. Clinton's ongoing non-truths, had to constantly change stories as new facts came to light. But, we can discuss that at another time.
If the Dow Jones Industrial Average (INDU) remains near or above 10,000 through the end of September, at the LATEST, I'd say that it would be time to go back to the lab.
Key downside levels to watch would be roughly 9,500 on the INDU, 1,025 on the Standard & Poor's 500 (SPX) and 2,100 on the Nasdaq Composite (IXIC). A break above 10,500 on the INDU, 1,100 on the SPX or 2,300 on the IXIC would suggest that the markets are probably poised to rally more.
As far as Gold goes, a break above $1,250 would suggest that an upside explosion could be at hand. Contrarily, a penetration below $1,200 would be bearish, short-term, and probably be followed by a sharp, albeit temporary, correction.
Other signs that this whole scenario is incorrect would include rising long-term interest rates or a falling Dollar. In the instance of a deflationary scare, we should see a strong dollar and strong bond market. The key industry group to watch is the financial stocks. They are currently poised to be leaders on the downside. The markets CANNOT rally without at least a some upside strength in this group.
Do we care about earnings or economic statistics? NO! They are backwards looking and have ZERO predictive value. In fact, any decline is likely to take place against a backdrop of at least decent news. Like a sleight-of-hand magician, markets are very expert at having investors look up when investors should be looking down. Look at my pretty assistant!
It's important to note, that as of this writing, not ONE of these possible contra-indicators is in place. In fact, there is only one piece of evidence that the scenario is not imminent. The yield curve is steep and positively sloped, meaning that the difference between long-term rates and short-term rates is high. The reason this is important is that a steep yield curve creates a very profitable lending environment for banks and other financial institutions which borrow short or cheap and lend long or dear. Since banks aren't lending, this may not be all that signficant.
The slope of the yield curve determines how profitable the financial sector will be prospectively. And, as noted above, the health of this sector is important to the direction of markets and the entire global financial system. It also has very high predictive value in assessing the prospects for economic growth.
Another sign of strength would be felt in the commodities markets outside of the precious metals, which are acting as currency right now. Keep an eye on oil, food and key industrial metals such as Copper. Dr. Copper, as it's known, is a better economist than most Nobel Laureates. Doc Copper has "Marko's Take" in his waiting room. As of today, all the commodities are either weak and weakening or looking very toppy.
So, keep on an eye on the checklist that might suggest that the dark clouds are nothing more than a short thunderstorm. The forecast is for torrential rains, but predicting the market is not much more of a precise science than the weather. Even if it doesn't rain, don't forget your umbrella.
Therefore, unless the conditions for a re-assessment are met, as described above, investors should continue to hold lots of cash, use inverse ETFs for hedging and profits, and wait out the storm.
Marko's Take
Tuesday, August 24, 2010
I See The Bad Moon Arisin'
Last night was a full moon. A BAD moon. With the recent solar eclipse window still open, coupled with the full moon, the anticipated crash, should it happen, ought to take place imminently. A review of the significance of astro-harmonics can be reviewed by clicking here: http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
Now that earnings season has encouraged investors, it's time for the economic reality to splash cold water in the financial markets' faces. The news is exceptionally poor.
The Richmond branch of the Federal Reserve’s measure of manufacturing activity for the mid-Atlantic region plunged by about 30% . The fall was less than economists were predicting, but the decline strongly suggests tha one of the US’s only area of strength has an empty gas tank.
The economy’s weakest sector, housing, got yet more bad news. Sales of existing homes fell 27.2% in July, the steepest monthly drop in 15 years and past consensus expectations of a 12% decline.
The Richmond Fed’s index came in at 11, versus 16 the previous month. Last week, the Philadelphia branch registered a disappointing index of factory activity that sent markets reeling, as it suggests a potential dip in the August reading of the broader Institute of Supply Management’s index. The Chicago Fed’s index is due next week.
And this is just the beginning. In today's trading, it appears that we will have yet another Hindenburg Omen. This makes at least 3, depending on whose definition of it one ascribes to. What's a few New Highs and New Lows among friends, anyway?
The equally ominous head and shoulders pattern gives us at least an idea of what might be reasonable to expect here in terms of the next intermediate low. A good rule of thumb is that once the neckline is broken, the downside target is equal to the decline that immediately preceeded it.
Thus, one could look to these levels for the market to take its next breather: 525 on the Russell 2000, 925 on the Standard & Poors 500, 1900 on the Nasdaq Composite and 8500 on the Dow Jones Industrial Average. And, these levels, or some approximation thereof, should be reached BEFORE the actual crash occurs, if there is one.
The only safe places to hide capital are Utilities, Oil Companies with a high dividend, Gold (physical), the Dollar and ultra-safe Bonds. For the aggressive, inverse ETFs such as FAZ and TWM ought to provide at least a good hedge, but also a very risky, but potentially very profitable trade.
I see the Bad Moon Arisin', I see trouble on the way....
Marko's Take
Now that earnings season has encouraged investors, it's time for the economic reality to splash cold water in the financial markets' faces. The news is exceptionally poor.
The Richmond branch of the Federal Reserve’s measure of manufacturing activity for the mid-Atlantic region plunged by about 30% . The fall was less than economists were predicting, but the decline strongly suggests tha one of the US’s only area of strength has an empty gas tank.
The economy’s weakest sector, housing, got yet more bad news. Sales of existing homes fell 27.2% in July, the steepest monthly drop in 15 years and past consensus expectations of a 12% decline.
The Richmond Fed’s index came in at 11, versus 16 the previous month. Last week, the Philadelphia branch registered a disappointing index of factory activity that sent markets reeling, as it suggests a potential dip in the August reading of the broader Institute of Supply Management’s index. The Chicago Fed’s index is due next week.
And this is just the beginning. In today's trading, it appears that we will have yet another Hindenburg Omen. This makes at least 3, depending on whose definition of it one ascribes to. What's a few New Highs and New Lows among friends, anyway?
The equally ominous head and shoulders pattern gives us at least an idea of what might be reasonable to expect here in terms of the next intermediate low. A good rule of thumb is that once the neckline is broken, the downside target is equal to the decline that immediately preceeded it.
Thus, one could look to these levels for the market to take its next breather: 525 on the Russell 2000, 925 on the Standard & Poors 500, 1900 on the Nasdaq Composite and 8500 on the Dow Jones Industrial Average. And, these levels, or some approximation thereof, should be reached BEFORE the actual crash occurs, if there is one.
The only safe places to hide capital are Utilities, Oil Companies with a high dividend, Gold (physical), the Dollar and ultra-safe Bonds. For the aggressive, inverse ETFs such as FAZ and TWM ought to provide at least a good hedge, but also a very risky, but potentially very profitable trade.
I see the Bad Moon Arisin', I see trouble on the way....
Marko's Take
Friday, August 20, 2010
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
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
Sunday, August 15, 2010
Hindenburg Omen All Over The Financial Press
Once a very arcane and unknown indicator, the Hindenburg Omen (HO) has now hit the big time. We've written several pieces about it. But, it's time to make a few corrections. Mea Culpa.
Stories have now appeared in the Wall St. Journal, Huffington Post, Wikipedia, the Drudge Report and even CNBC. A good deal of information presented about HO is incorrect, including some presented in Marko's Take.
Unfortunately, the lack of understanding has led to many rumors and innuendos, which is NOT an Italian suppository! Many readers have pointed out some of our incorrect conclusions, so let's take some time to review the evidence.
The Omen, named after the famous German airship in 1937 that crashed in Lakehurst, N.J., is a technical indicator that foreshadows, not just a bear market, but a stock market crash. Its creator, a blind mathematician named Jim Miekka, said his indicator is now predicting a market meltdown in September.
Mr. Miekka came up with the Omen in 1995 as a way to predict big market downturns, developing a formula that parses data like 52-week New Highs and Lows and the moving averages of the New York Stock Exchange. He said the HO's name was coined by a fellow market technician, Kennedy Gammage, when they found out the name "Titanic" already had been taken.
The confluence of data used by the Omen was officially tripped this week. There were 92 companies that hit new 52-week highs on Thursday, or 2.9% of all companies traded on the New York Stock Exchange. There were also 81 new lows, or 2.6% of the total. Each number must exceed 2.5% for the Omen to occur, according to Mr. Miekka.
The Omen was behind every market crash since 1987, but also has occurred many other times without an ensuing significant downturn. Market analysts said only about 25% of Omen appearances have led to stock market declines that can be considered crashes.
Even the experts, however, aren't in agreement. Robert McHugh believes that we have had one HO, which occurred on August 12th. He maintains that the HO is NOT confirmed. And, from McHugh's work, the trigger is 2.2% New Highs and New Lows, not the 2.5% that Miekka believes.
According to McHugh, the odds of a crash following an HO are 30%. However, no crash has occurred without the presence of an HO. Thus, a crash requires a confirmed HO, while an HO does NOT guarantee a crash. According to McHugh, there have been 27 confirmed HO's and 8 market crashes.
McHugh writes that with the Federal Reserve (FED) pumping liquidity into the financial system, the market will have a source of buoyancy. I'd like to suggest to Mr. McHugh that he obtain a subscription to Shadow Stats, and, of course, Marko's Take.
According to John Williams, M3 is declining at an historic rate. In fact, akin to that experienced during the Great Depression. For more on the powerlessness of the FED, click here: http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
In addition, McHugh should review the work of Steven Puetz. According to Puetz, the planetary alignment is ideal for a crash to occur. For a review of Puetz' findings, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
Another expert in astro-harmonics is noted analyst Arch Crawford. Arch has been awarded many "market timer of the year" awards and he sees a crash coming.
But, there are other reasons to determine that a major decline is not far off. For one, the ominous Head and Shoulders chart pattern. The same pattern that existed just prior to the market collapse of 2008-09.
Regardless of the trajectory of the market, the one thing we must be aware of is that the odds of upside from here are extraordinarily low. The odds of a meltdown are pretty damn high. I wouldn't be standing on the train tracks with a loud "toot toot" getting closer every second.
Marko's Take
On Sunday, August 22nd, a most Un-ominous event will be taking place. The California Wildlife Center will be sponsoring it's annual fundraiser called "The Wild Brunch: Fawntasia". For more information on purchasing tickets or donating, please click here: http://cwcthewildbrunch12.eventbrite.com/.
Stories have now appeared in the Wall St. Journal, Huffington Post, Wikipedia, the Drudge Report and even CNBC. A good deal of information presented about HO is incorrect, including some presented in Marko's Take.
Unfortunately, the lack of understanding has led to many rumors and innuendos, which is NOT an Italian suppository! Many readers have pointed out some of our incorrect conclusions, so let's take some time to review the evidence.
The Omen, named after the famous German airship in 1937 that crashed in Lakehurst, N.J., is a technical indicator that foreshadows, not just a bear market, but a stock market crash. Its creator, a blind mathematician named Jim Miekka, said his indicator is now predicting a market meltdown in September.
Mr. Miekka came up with the Omen in 1995 as a way to predict big market downturns, developing a formula that parses data like 52-week New Highs and Lows and the moving averages of the New York Stock Exchange. He said the HO's name was coined by a fellow market technician, Kennedy Gammage, when they found out the name "Titanic" already had been taken.
The confluence of data used by the Omen was officially tripped this week. There were 92 companies that hit new 52-week highs on Thursday, or 2.9% of all companies traded on the New York Stock Exchange. There were also 81 new lows, or 2.6% of the total. Each number must exceed 2.5% for the Omen to occur, according to Mr. Miekka.
The Omen was behind every market crash since 1987, but also has occurred many other times without an ensuing significant downturn. Market analysts said only about 25% of Omen appearances have led to stock market declines that can be considered crashes.
Even the experts, however, aren't in agreement. Robert McHugh believes that we have had one HO, which occurred on August 12th. He maintains that the HO is NOT confirmed. And, from McHugh's work, the trigger is 2.2% New Highs and New Lows, not the 2.5% that Miekka believes.
According to McHugh, the odds of a crash following an HO are 30%. However, no crash has occurred without the presence of an HO. Thus, a crash requires a confirmed HO, while an HO does NOT guarantee a crash. According to McHugh, there have been 27 confirmed HO's and 8 market crashes.
McHugh writes that with the Federal Reserve (FED) pumping liquidity into the financial system, the market will have a source of buoyancy. I'd like to suggest to Mr. McHugh that he obtain a subscription to Shadow Stats, and, of course, Marko's Take.
According to John Williams, M3 is declining at an historic rate. In fact, akin to that experienced during the Great Depression. For more on the powerlessness of the FED, click here: http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
In addition, McHugh should review the work of Steven Puetz. According to Puetz, the planetary alignment is ideal for a crash to occur. For a review of Puetz' findings, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
Another expert in astro-harmonics is noted analyst Arch Crawford. Arch has been awarded many "market timer of the year" awards and he sees a crash coming.
But, there are other reasons to determine that a major decline is not far off. For one, the ominous Head and Shoulders chart pattern. The same pattern that existed just prior to the market collapse of 2008-09.
Regardless of the trajectory of the market, the one thing we must be aware of is that the odds of upside from here are extraordinarily low. The odds of a meltdown are pretty damn high. I wouldn't be standing on the train tracks with a loud "toot toot" getting closer every second.
Marko's Take
On Sunday, August 22nd, a most Un-ominous event will be taking place. The California Wildlife Center will be sponsoring it's annual fundraiser called "The Wild Brunch: Fawntasia". For more information on purchasing tickets or donating, please click here: http://cwcthewildbrunch12.eventbrite.com/.
Thursday, August 12, 2010
Hindenburg Omen: 3rd Time's The Charm
Recently, we've been covering a most off-the-run indicator called the Hindenburg Omen (HO). For some background, click here http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html. For the indicator to be confirmed, it must occur in clusters within an approximate 5 or 6 week window. Number 3 just occurred in this morning's trading.
The news gets worse. Last evening, Cisco Systems' (CSCO) John Chambers, always the optimist, gave a somewhat pessimisstic outlook for the economy on the conference call following the release of Cisco's earnings.
Revenue for the latest quarter fell short of analyst expectations at Cisco Systems Inc., and Chambers said customers were expecting a slowdown in the economic recovery. Chambers goes on "In terms of the economy, it's mixed signals. ... The majority of my customers believe the economy is going to continue just going slowly going up, but very slowly. Not what they would have said even just three to four months ago in terms of their expectations."
For Chambers, this is tantamount to calling for a Double-Dip Hyperinflationary Depression. He must be a closet reader of "Marko's Take".
So, while corporate earnings for the 2nd quarter came in at pretty decent levels, they are irrelevant. What's important is the outlook, which is mixed at best.
What's also mixed is the situation with Gold and precious metals stocks. On the one hand, Gold is holding up remarkably well and should continue to do so. Even in the oncoming deflationary freight train, Gold may continue to get a major crisis bid as it did at times in the meltdown of 2008-2009. On the other hand, it is a very liquid and salable asset. If hedge funds and other investors get margin calls, it is the easiest way to raise liquidity. Ultimately, as hyper-inflation rules the day, Gold will absolutely sky-rocket.
I continue to be short-term neutral on the precious metals sector. There ought to be a better entry point, but that is far from guaranteed. If missiles fly in the Middle East, Gold could jump by $100 per ounce overnight. If the stock market meltsdown, as we expect, Gold could fall by $100 per ounce overnight. It could do both on consecutive days. I would still recommend maintaining some position, just in case, but would be cautious about betting the farm...yet.
The best play, in my mind continues to be certain inverse ETFs. These are highly volatile, not for the feint of heart, but a great way to hedge, at the very least. Again, I would NOT recommend betting the farm on these, either.
If you don't like inverse ETFs, fine. Stay in cash, and be thankful you have some. Lot's of folks are about to be wiped out. Please don't let yourself be one of them.
Stay tuned.
Marko's Take
On Sunday, August 22nd, the California Wildlife Center will have it's annual fundraiser called "The Wild Brunch: Fawntasia". If you're in the Southern California area, and wish to come down and support this fabulous cause, tickets can be purchased by clicking here: http://cwcthewildbrunch12.eventbrite.com/.
The news gets worse. Last evening, Cisco Systems' (CSCO) John Chambers, always the optimist, gave a somewhat pessimisstic outlook for the economy on the conference call following the release of Cisco's earnings.
Revenue for the latest quarter fell short of analyst expectations at Cisco Systems Inc., and Chambers said customers were expecting a slowdown in the economic recovery. Chambers goes on "In terms of the economy, it's mixed signals. ... The majority of my customers believe the economy is going to continue just going slowly going up, but very slowly. Not what they would have said even just three to four months ago in terms of their expectations."
For Chambers, this is tantamount to calling for a Double-Dip Hyperinflationary Depression. He must be a closet reader of "Marko's Take".
So, while corporate earnings for the 2nd quarter came in at pretty decent levels, they are irrelevant. What's important is the outlook, which is mixed at best.
What's also mixed is the situation with Gold and precious metals stocks. On the one hand, Gold is holding up remarkably well and should continue to do so. Even in the oncoming deflationary freight train, Gold may continue to get a major crisis bid as it did at times in the meltdown of 2008-2009. On the other hand, it is a very liquid and salable asset. If hedge funds and other investors get margin calls, it is the easiest way to raise liquidity. Ultimately, as hyper-inflation rules the day, Gold will absolutely sky-rocket.
I continue to be short-term neutral on the precious metals sector. There ought to be a better entry point, but that is far from guaranteed. If missiles fly in the Middle East, Gold could jump by $100 per ounce overnight. If the stock market meltsdown, as we expect, Gold could fall by $100 per ounce overnight. It could do both on consecutive days. I would still recommend maintaining some position, just in case, but would be cautious about betting the farm...yet.
The best play, in my mind continues to be certain inverse ETFs. These are highly volatile, not for the feint of heart, but a great way to hedge, at the very least. Again, I would NOT recommend betting the farm on these, either.
If you don't like inverse ETFs, fine. Stay in cash, and be thankful you have some. Lot's of folks are about to be wiped out. Please don't let yourself be one of them.
Stay tuned.
Marko's Take
On Sunday, August 22nd, the California Wildlife Center will have it's annual fundraiser called "The Wild Brunch: Fawntasia". If you're in the Southern California area, and wish to come down and support this fabulous cause, tickets can be purchased by clicking here: http://cwcthewildbrunch12.eventbrite.com/.
Friday, August 6, 2010
Another Hindenburg Omen
The horrible jobs report just released this morning showed what we've been saying all along. There is NO recovery. Interesting that economic adviser Christine Romer announced her resignation last night. Could she be a regular reader of "Marko's Take"? Could she have known that the jobs report was going to be so damn bad?
More important to investors is the very, very likely occurrence of another Hindenburg Omen in today's trading. For more information on the significance of this, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-foretells-coming-market.html.
Another relevant item is the calendar. The 3 major NYSE crashes occurred within a 6 week window of the equinox, which is typically September 22. That would suggest that after August 10th, the market will be within this time frame. Tuesday is August 10th. It may occur anytime thereafter. Crashes also occur WELL below the level of the preceeding market peak. In general, the largest down days in history followed a rapid drop of 20-25% off the peak. If history repeats, the coming crash should commence from BELOW Dow 9000!
If one goes back just to the crashes in the NYSE, we had the meltdowns of 2008, 1987 and 1929 as examples. All were late summer, early fall events. Don't ask me why. I'm still trying to understand what solar eclipses and full moons have to do with anything financial.
During the lead-in period to a crash, the market experiences what technicians refer to as "90%" days. These refer to a preponderance of trading volume to either advancing or declining issues. During the sizzling advance of the last 3 weeks, we experienced several of these days. And, during the decline that just preceeded it, we had a number of 90% downside days. This schizophrenia is what the Hindenburg Omen measures: an emotional dis-jointedness that is conducive to a sudden shift from euphoria to panic.
A key question for investors is what they should do now. If, as I believe, we are in another deflation scare, the only safe places are likely to be ultra-high quality bonds, and probably the U.S. Dollar.
What about Gold? In the near term, it's hard to be definitive. On the one hand, it will undoubtedly benefit from a "flight-to-safety" bid. On the other hand, the temporary deflation scare will put pressure on all hard assets. Under just about any forseeable scenario, Gold ought to hold up better than virtually any other asset. However, there MAY be a better entry point. I'd prefer to wait and see on this one.
In the intermediate to longer term, Gold remains in a very powerful bull market. With the inevitability of the introduction of "Quantitative Easing 2", and more stimulus spending in the offing, the seeds of hyper-inflation are being sown. Once we succeed in completely debasing the currency, where can investors protect their wealth except by owning Gold? In addition, the long underperforming junior miners should finally see those magnificent parabolic advances that have been long anticipated. Again, there should be better entry points.
This is no time to put your head in the sand.
Marko's Take
More important to investors is the very, very likely occurrence of another Hindenburg Omen in today's trading. For more information on the significance of this, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-foretells-coming-market.html.
Another relevant item is the calendar. The 3 major NYSE crashes occurred within a 6 week window of the equinox, which is typically September 22. That would suggest that after August 10th, the market will be within this time frame. Tuesday is August 10th. It may occur anytime thereafter. Crashes also occur WELL below the level of the preceeding market peak. In general, the largest down days in history followed a rapid drop of 20-25% off the peak. If history repeats, the coming crash should commence from BELOW Dow 9000!
If one goes back just to the crashes in the NYSE, we had the meltdowns of 2008, 1987 and 1929 as examples. All were late summer, early fall events. Don't ask me why. I'm still trying to understand what solar eclipses and full moons have to do with anything financial.
During the lead-in period to a crash, the market experiences what technicians refer to as "90%" days. These refer to a preponderance of trading volume to either advancing or declining issues. During the sizzling advance of the last 3 weeks, we experienced several of these days. And, during the decline that just preceeded it, we had a number of 90% downside days. This schizophrenia is what the Hindenburg Omen measures: an emotional dis-jointedness that is conducive to a sudden shift from euphoria to panic.
A key question for investors is what they should do now. If, as I believe, we are in another deflation scare, the only safe places are likely to be ultra-high quality bonds, and probably the U.S. Dollar.
What about Gold? In the near term, it's hard to be definitive. On the one hand, it will undoubtedly benefit from a "flight-to-safety" bid. On the other hand, the temporary deflation scare will put pressure on all hard assets. Under just about any forseeable scenario, Gold ought to hold up better than virtually any other asset. However, there MAY be a better entry point. I'd prefer to wait and see on this one.
In the intermediate to longer term, Gold remains in a very powerful bull market. With the inevitability of the introduction of "Quantitative Easing 2", and more stimulus spending in the offing, the seeds of hyper-inflation are being sown. Once we succeed in completely debasing the currency, where can investors protect their wealth except by owning Gold? In addition, the long underperforming junior miners should finally see those magnificent parabolic advances that have been long anticipated. Again, there should be better entry points.
This is no time to put your head in the sand.
Marko's Take
Wednesday, July 21, 2010
Has The Crash Sequence Begun?
All the necessary conditions are in place. After Tuesday's trading, both the Dow Jones Industrial Average ( DJIA) and the Standard & Poor's 500 (SPX) had posted gains in 10 of the last 11 trading days. Such strings are very, very rare. They indicate panic. In this case, all the short-sellers who had gotten aggressive, have been sent running for cover.
Market sentiment, which had gotten quite bearish, is now pretty bullish especially on the back of a slew of earnings reports which have deluded investors into believing that the economic "recovery" is gaining momentum. It isn't. Apple is not enough to save the economy.
Earnings are backward looking. They have absolutely NO predictive value. In fact, market bubbles peak when the news is great. Market bottoms occur when the sky is falling. In 1929, economists believed that the market had achieved a new plateau. They were wrong. In 2000, investment analysts talked about a new investment paradigm of valuation not mattering. They were wrong. All those hot internet stocks went bankrupt by the dozens.
The important thing to note is that it is not too late to protect your remaining assets. Down 50%? Fine. You want to lose another 50%?
The most important goal for any investor here should be survival. There will be other times to participate in stocks and other investments. There will be lower risk entry points. Better that you preserve your liquid assets to enter when everyone else has been wiped out.
If you're new to this column, you may wish to read two recent pieces on why the current situation is so damn dangerous: http://markostake.blogspot.com/2010/07/8-more-reasons-to-avoid-stocks.html and http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
You can also profit from the coming market meltdown, but be aware that short-selling and the use of inverse ETFs is very treacherous and not for the feint of heart or risk-averse. I do, however, recommend at least a small position as a hedge to offset losses in your other assets.
Should you load up on Gold here or precious metals mining stocks? Probably not yet, even though Gold may perform well in a crisis situation. If we're in the middle of another deflation scare, they are unlikely to be unscathed. That said, Gold will probably be the best asset to hold value even in the worst scenario. However, as investors seek liquidity to meet margin calls or redemptions, they will be forced to sell the most liquid assets. Be patient. There will be a much better time to load the truck.
It's also time to review all your assets and exposures. Very few will escape the imminent market meltdown.
The only assets likely to perform here are very safe bonds. In a deflation scare, interest rates are likely to either stay very low or go even lower. The deservedly much-maligned U.S. Dollar ought to continue to see "flight-to-safety" interest.
If I'm right about what's coming down the pike, life as we know it will turn into life as we KNEW it.
Marko's Take
Market sentiment, which had gotten quite bearish, is now pretty bullish especially on the back of a slew of earnings reports which have deluded investors into believing that the economic "recovery" is gaining momentum. It isn't. Apple is not enough to save the economy.
Earnings are backward looking. They have absolutely NO predictive value. In fact, market bubbles peak when the news is great. Market bottoms occur when the sky is falling. In 1929, economists believed that the market had achieved a new plateau. They were wrong. In 2000, investment analysts talked about a new investment paradigm of valuation not mattering. They were wrong. All those hot internet stocks went bankrupt by the dozens.
The important thing to note is that it is not too late to protect your remaining assets. Down 50%? Fine. You want to lose another 50%?
The most important goal for any investor here should be survival. There will be other times to participate in stocks and other investments. There will be lower risk entry points. Better that you preserve your liquid assets to enter when everyone else has been wiped out.
If you're new to this column, you may wish to read two recent pieces on why the current situation is so damn dangerous: http://markostake.blogspot.com/2010/07/8-more-reasons-to-avoid-stocks.html and http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
You can also profit from the coming market meltdown, but be aware that short-selling and the use of inverse ETFs is very treacherous and not for the feint of heart or risk-averse. I do, however, recommend at least a small position as a hedge to offset losses in your other assets.
Should you load up on Gold here or precious metals mining stocks? Probably not yet, even though Gold may perform well in a crisis situation. If we're in the middle of another deflation scare, they are unlikely to be unscathed. That said, Gold will probably be the best asset to hold value even in the worst scenario. However, as investors seek liquidity to meet margin calls or redemptions, they will be forced to sell the most liquid assets. Be patient. There will be a much better time to load the truck.
It's also time to review all your assets and exposures. Very few will escape the imminent market meltdown.
The only assets likely to perform here are very safe bonds. In a deflation scare, interest rates are likely to either stay very low or go even lower. The deservedly much-maligned U.S. Dollar ought to continue to see "flight-to-safety" interest.
If I'm right about what's coming down the pike, life as we know it will turn into life as we KNEW it.
Marko's Take
Wednesday, July 7, 2010
Hindenburg Omen Confirmed... Or, Was It?
The Hindenburg Omen (HO) was described in yesterday's blog. For more on how it works, click here http://markostake.blogspot.com/2010/07/hindenburg-omen-foretells-coming-market.html.
For the HO to be confirmed, it must happen at least twice in a 36-day window. Did we get confirmation today? Well, that's a tough one. According to Yahoo Finance, there were 102 new highs and 85 new lows out of 3,946 issues traded. That means that the new highs test was met, but the new lows test came in at 2.155% of issues traded. The trigger criteria calls for 2.2%. Are we supposed to round up?
But, the HO is not nearly the only reason to fear a market meltdown. There are a whole slew of others. Some are out there, some are not.
A man named Steve Puetz (pronounced "pits") is a student of stock market crashes. He has concluded that solar eclipses combined with full moons were somehow connected to the timing of market crashes. He does NOT suggest that full moons close to solar eclipses cause market crashes. But, his research does demonstrate that a full moon occurring close to a solar eclipse, in particular, seems to affect investor psychology in such a way as to transform investor emotions into panic.
His research found that 8 of the greatest market crashes in history fell within a time period of 6 days before, to 3 days after, a full moon that occurred within 6 weeks of a solar eclipse. Yes, you read that right!
Could this be random? Statistically, he found that for all 8 crashes to accidentally fall within the required intervals would be less than one chance in 127,000.
It's important to understand that EVERY solar eclipse must, by definition, occur within six weeks of a full moon, which occurs every 4 weeks. The combination does NOT mean a waterfall decline will ensue, but it does suggest a timing window, should one occur.
Now, here's where things get verrrrry interesting, as Arte Johnson would say. In the year 2010, there are only 2 solar eclipses: One occurred in January, and the only other one will occur on July 11! The next full moon occurs on July 26th, with one to follow on August 24th. So, if we combine the research of Robert McHugh with that of Steve Puetz, this would suggest that a crash could occur at anytime!
Don't buy that one? I don't blame you. But, there is a lot more.
Dow Theory holds that when the Industrials make a new low confirmed by a new low in either the Transportations or the Utilities, a new bear market has been indicated. This signal has been given. Dow Theory does NOT predict crashes, just suggests that the primary direction of the market is down.
Let's not forget the horrific plunge in the nation's money supply. According to adjusted numbers crunched by John Williams of ShadowStats, inflation-adjusted M3 is declining at an annualized rate of 5.9%, the steepest since the Great Depression. This drop reflects sharply reduced lending by financial institutions and foresages extreme problems in the banking sector.
According to Williams, whenever real annual M3 growth has turned negative, the economy has followed. Every time real M3 has contracted, the economy has fallen into recession shortly thereafter, or, as in the case of the 1973 to 1975 recession, where the M3 contraction took place after the recession had started, the existing downturn has intensified. Double dip, anyone?
Ignore this at your market peril.
Marko's Take
For the HO to be confirmed, it must happen at least twice in a 36-day window. Did we get confirmation today? Well, that's a tough one. According to Yahoo Finance, there were 102 new highs and 85 new lows out of 3,946 issues traded. That means that the new highs test was met, but the new lows test came in at 2.155% of issues traded. The trigger criteria calls for 2.2%. Are we supposed to round up?
But, the HO is not nearly the only reason to fear a market meltdown. There are a whole slew of others. Some are out there, some are not.
A man named Steve Puetz (pronounced "pits") is a student of stock market crashes. He has concluded that solar eclipses combined with full moons were somehow connected to the timing of market crashes. He does NOT suggest that full moons close to solar eclipses cause market crashes. But, his research does demonstrate that a full moon occurring close to a solar eclipse, in particular, seems to affect investor psychology in such a way as to transform investor emotions into panic.
His research found that 8 of the greatest market crashes in history fell within a time period of 6 days before, to 3 days after, a full moon that occurred within 6 weeks of a solar eclipse. Yes, you read that right!
Could this be random? Statistically, he found that for all 8 crashes to accidentally fall within the required intervals would be less than one chance in 127,000.
It's important to understand that EVERY solar eclipse must, by definition, occur within six weeks of a full moon, which occurs every 4 weeks. The combination does NOT mean a waterfall decline will ensue, but it does suggest a timing window, should one occur.
Now, here's where things get verrrrry interesting, as Arte Johnson would say. In the year 2010, there are only 2 solar eclipses: One occurred in January, and the only other one will occur on July 11! The next full moon occurs on July 26th, with one to follow on August 24th. So, if we combine the research of Robert McHugh with that of Steve Puetz, this would suggest that a crash could occur at anytime!
Don't buy that one? I don't blame you. But, there is a lot more.
Dow Theory holds that when the Industrials make a new low confirmed by a new low in either the Transportations or the Utilities, a new bear market has been indicated. This signal has been given. Dow Theory does NOT predict crashes, just suggests that the primary direction of the market is down.
Let's not forget the horrific plunge in the nation's money supply. According to adjusted numbers crunched by John Williams of ShadowStats, inflation-adjusted M3 is declining at an annualized rate of 5.9%, the steepest since the Great Depression. This drop reflects sharply reduced lending by financial institutions and foresages extreme problems in the banking sector.
According to Williams, whenever real annual M3 growth has turned negative, the economy has followed. Every time real M3 has contracted, the economy has fallen into recession shortly thereafter, or, as in the case of the 1973 to 1975 recession, where the M3 contraction took place after the recession had started, the existing downturn has intensified. Double dip, anyone?
Ignore this at your market peril.
Marko's Take
Tuesday, July 6, 2010
Hindenburg Omen Foretells Coming Market Meltdown
Investors use a variety of data points to assess the likely future course of the market. Some are WAY out there, such as astrology, sunspots and cycles of the moon. Others are more traditional like charts, sentiment ratios and overbought/oversold indicators. Rarely do these types of indicators, which are followed by many, provide much value added. Most academic studies conclude that the market is a "random walk", meaning that, over the long-term, beating the market is deemed impossible.
For an indicator to even have a chance at being valuable, it must remain somewhat unknown, or understood by very few people. If it were widely followed, then investors would act on it and it would cease to remain useful. That's the basis of the "efficient market hypothesis".
One very valuable and arcane indicator goes by the name of "The Hindenburg Omen" (HO).
What, exactly, is a Hindenburg Omen? It occurs when several technical factors that indicate certain underlying conditions of the New York Stock Exchange (NYSE) are present simultaneously. The HO has been present before all of the stock market crashes and/or panics of the past 25 years. No significant sell-off, during this period, has occurred without the presence of a Hindenburg Omen.
A Hindenburg Omen is triggered when the daily number of NYSE new 52 Week highs and the daily number of new 52 week lows both exceed 2.2% of all issues traded. In Tuesday's trading, BOTH new highs and new lows met that criteria.
A brilliant newsletter writer named Robert McHugh, has done a tremendous amount of analysis on this indicator and used statistical analysis to perfect its signals. According to McHugh, the traditional trigger, to be truly indicative, has several more filters. These filters include a rising 10-week moving average and negative market breadth, as measured by an index called the McClellan Oscillator. Both criteria are present today.
Even with these additional filters, the HO has still failed on occasion. McHugh has developed 2 additonal filters to make the signal deadly accurate. Condition 4 requires that new 52 week NYSE highs cannot be more than twice new 52 week lows. However. it is acceptable for new 52 week lows to be more than double the highs. This was met today.
McHugh's research has determined that there have been 2 incidences where the first 3 conditions existed, but new highs were more than double new lows, and no market decline resulted.
The 5th condition for a Hindenburg Omen to be completely valid is that there must be more than one signal within a 36-day period. McHugh found 8 instances over the past 25 years where there was just one isolated Hindenburg Omen signal over a 36-day period. In 7 of the 8, no sharp declines followed. Most HO's occur in swarms.
But, before we totally follow McHugh off a cliff, be aware that he is also a disciple of Elliot Wave Analysis, a completely useless notion of market movement.
McHugh also projects that the market is ultimately going to trade to near zero. Perhaps he's read too many books on 2012!
Tuesday was HO number 1, so a warning flag has been raised. It is nowhere near a foregone conclusion that a market plunge is imminent. However, there were other very bad technical signs in Tuesday's trading.
The Russell 2000, a very broad measure of small capitalization stocks, completed an "outside day reversal". These occur when a stock or index trades above the high of the previous day, reverses and then closes lower than the prior day's low. These are far from inflammable, as Archie Bunker might say, but tend to be correlated with more movement in the direction of the close. Since the Russell closed down, we can logically expect more downside imminently, although we don't know how much further the short-term momentum will carry.
The timing of a decline following an HO can begin the day after or as long as 4 months after the signal. In the current situation, the confirming signal may occur at a lower level. In fact, market crashes NEVER start from a top. They generally occur at least 20% lower than the top. In 1987, for example, the Dow Jones Industrial Average peaked at 2,700 and change. The crash began with the index a full 20% lower than its peak. The same can be said for the market crash that occurred during the Great Depression.
So, assuming we've raised your level of concern, what should an investor do with this information? At the very least, HEDGE! Take a position in a security that can gain if the rest of your portfolio declines. This can be accomplished by purchasing some aggressive inverse ETFs. My personal favorite is FAZ, a 3x negative play on the financial sector. If you want to hedge using the Russell 2000, an ETF with the symbol TWM will give you a great play on any downside.
FAZ, which currently trades around $18 per share, traded at $2,000 per share in late 2008! It has that much leverage. So, employing one of these, assuming the market melts down, can result in huge gains! Same goes for TWM. There are inverse, leveraged ETFs covering nearly every industry and every index.
This is no time for investors to put their heads in the sand. While the most dire prediction may not come to fruition, ignore this signal at your own investment peril.
Marko's Take
Subsequent to this piece, more information on the HO has emerged. For an update on this indicator, please click this correction: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
For an indicator to even have a chance at being valuable, it must remain somewhat unknown, or understood by very few people. If it were widely followed, then investors would act on it and it would cease to remain useful. That's the basis of the "efficient market hypothesis".
One very valuable and arcane indicator goes by the name of "The Hindenburg Omen" (HO).
What, exactly, is a Hindenburg Omen? It occurs when several technical factors that indicate certain underlying conditions of the New York Stock Exchange (NYSE) are present simultaneously. The HO has been present before all of the stock market crashes and/or panics of the past 25 years. No significant sell-off, during this period, has occurred without the presence of a Hindenburg Omen.
A Hindenburg Omen is triggered when the daily number of NYSE new 52 Week highs and the daily number of new 52 week lows both exceed 2.2% of all issues traded. In Tuesday's trading, BOTH new highs and new lows met that criteria.
A brilliant newsletter writer named Robert McHugh, has done a tremendous amount of analysis on this indicator and used statistical analysis to perfect its signals. According to McHugh, the traditional trigger, to be truly indicative, has several more filters. These filters include a rising 10-week moving average and negative market breadth, as measured by an index called the McClellan Oscillator. Both criteria are present today.
Even with these additional filters, the HO has still failed on occasion. McHugh has developed 2 additonal filters to make the signal deadly accurate. Condition 4 requires that new 52 week NYSE highs cannot be more than twice new 52 week lows. However. it is acceptable for new 52 week lows to be more than double the highs. This was met today.
McHugh's research has determined that there have been 2 incidences where the first 3 conditions existed, but new highs were more than double new lows, and no market decline resulted.
The 5th condition for a Hindenburg Omen to be completely valid is that there must be more than one signal within a 36-day period. McHugh found 8 instances over the past 25 years where there was just one isolated Hindenburg Omen signal over a 36-day period. In 7 of the 8, no sharp declines followed. Most HO's occur in swarms.
But, before we totally follow McHugh off a cliff, be aware that he is also a disciple of Elliot Wave Analysis, a completely useless notion of market movement.
McHugh also projects that the market is ultimately going to trade to near zero. Perhaps he's read too many books on 2012!
Tuesday was HO number 1, so a warning flag has been raised. It is nowhere near a foregone conclusion that a market plunge is imminent. However, there were other very bad technical signs in Tuesday's trading.
The Russell 2000, a very broad measure of small capitalization stocks, completed an "outside day reversal". These occur when a stock or index trades above the high of the previous day, reverses and then closes lower than the prior day's low. These are far from inflammable, as Archie Bunker might say, but tend to be correlated with more movement in the direction of the close. Since the Russell closed down, we can logically expect more downside imminently, although we don't know how much further the short-term momentum will carry.
The timing of a decline following an HO can begin the day after or as long as 4 months after the signal. In the current situation, the confirming signal may occur at a lower level. In fact, market crashes NEVER start from a top. They generally occur at least 20% lower than the top. In 1987, for example, the Dow Jones Industrial Average peaked at 2,700 and change. The crash began with the index a full 20% lower than its peak. The same can be said for the market crash that occurred during the Great Depression.
So, assuming we've raised your level of concern, what should an investor do with this information? At the very least, HEDGE! Take a position in a security that can gain if the rest of your portfolio declines. This can be accomplished by purchasing some aggressive inverse ETFs. My personal favorite is FAZ, a 3x negative play on the financial sector. If you want to hedge using the Russell 2000, an ETF with the symbol TWM will give you a great play on any downside.
FAZ, which currently trades around $18 per share, traded at $2,000 per share in late 2008! It has that much leverage. So, employing one of these, assuming the market melts down, can result in huge gains! Same goes for TWM. There are inverse, leveraged ETFs covering nearly every industry and every index.
This is no time for investors to put their heads in the sand. While the most dire prediction may not come to fruition, ignore this signal at your own investment peril.
Marko's Take
Subsequent to this piece, more information on the HO has emerged. For an update on this indicator, please click this correction: http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
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