Tuesday, June 11, 2013

Cluster of “Hindenburg Omens” + Extreme Sentiment = Correction Continues

“Jason Goepfert, founder of Sundial Capital Research and author of the SentimenTrader Daily Report, said there have been a cluster of five Hindenburg Omens over the past few weeks…

[The Hindenburg omen is a series of stock market technical indicators that supposedly signal trouble ahead.  I say, supposedly, because the data shows the market is usually down after the omen, but not always by a huge amount. - MS]

“…That’s a heavy concentration that we haven’t seen too many other times over a span of nearly 50 years,” Goepfert wrote in his Monday report. “And when we have, it hasn’t been good.”… “The last two big clusters of Omens occurred in the spring of 2000 and the summer/fall of 2007,” he said. “Those were excellent heads-up of looming trouble, but prior to that it was nothing but hot air.”

 “…Hoist the warning pennant, Ensign!” UBS' Art Cashin wrote in his morning note.”  Story at…

“North American shipment volume rebounded in May, while expenditures remained almost unchanged. This seems an accurate reflection of the mixed results in the freight sector and the economy overall. Unemployment is declining, yet job creation is still weak. GDP growth is stronger than last year; however the manufacturing sector is slowing. Inventories are slowly eroding, but inventorytosales ratios are creeping up. Ports are reporting increased container traffic, which is in line with increased shipments domestically. Exports and imports have moved up and down in 2013, but are currently lower than at the end of 2012.”  Report available from…

In the Guggenheim/Rydex finds I track for the Sentiment indicator in the NTSM analysis, 67% of traders are betting on positive returns for the markets.  That’s a 5-day moving average and it is an extreme value that indicates that a topping process is underway.  When 2 out of every 3 investors think the market is going up – it usually doesn’t.

Tuesday, the S&P 500 closed down about 1% to 1626 (rounded).
VIX was up about 11% to 17.01 so the options boys are getting concerned again.

The next big test will be an S&P 500 retreat to the lower trend line, now at about 1610.  The S&P 500 may bounce there again.  If it falls thru 1610, that will be bad for the markets and may precipitate some serious selling.

Tuesday less than 15% of stocks advanced on the NYSE.  There were only 34 new-highs with 263 new-lows.  These ugly numbers suggest further downside ahead. 

Tuesday, the overall NTSM analysis was HOLD at the close.  

I remain about 20% invested in stocks as of 5 March (S&P 500 -1540).  My reasoning may be found at…(although that probably looks pretty lame by now.)
The NTSM system sold at 1575 on 16 April.  (This is just another reminder that I should follow the NTSM analysis and not act emotionally – I am under-performing my own system by about 2%!)

I have no problems leaving 20% or 30% invested.  If the market is cut in half (worst case) I’d only lose 10%-15% of my investments.  It also hedges the bet if I am wrong since I will have some invested if the market goes up.  No system is perfect.