Tuesday, June 4, 2013

Hindenburg Omen – A Technical Stock Market Crash Prediction; NTSM is SELL

The Hindenburg Omen is a series of technical indicators that portend stock market disaster.  (Think of the photos of the giant dirigible exploding and burning.)  The last Hindenburg Omen was October 2007.  The Hindenburg Omen is now in play in today’s stock market.  See the following from MarketWatch.

“…what are the signs of the Hindenburg Omen? Well, a series of market breadth indicators need to occur twice within 36 trading days of each other to portend a serious market decline within the next 40 days…All [of the conditions for the Hindenburg Omen]  were met on April 15 and May 29, according to Jonathan Krinsky, chief technical market analyst at Miller Tabak & Co...“According to Bloomberg, the last ‘confirmed’ omen was in October 2007,” Krinsky wrote in a recent note. “It makes some sense given the dispersion between new 52 week highs and lows. Therefore, it is always good to be aware of it, even if it proves to be nothing more than a silly topic to bring up at your next cocktail party.”  Full story at MarketWatch at…

“Not necessarily says Heidi Moore, U.S. finance and economics editor at the Guardian. The so-called housing recovery may be “dubious,” she writes in a recent column: “What looks like a housing recovery to the rest of us, but is, in fact, something of a trap.”…Moore says banks and investors are propping up the recovery, not real buyers. Banks now own a large percentage of available homes for sale because of foreclosures and are controlling the supply to artificially increase prices, she argues…“It’s not people buying these houses,” she says. It’s investors, people who want to flip it. It’s the people who have ready cash. Right now it’s a big boys game in housing.”  Story at…

MORE ON THE ISM PMI NUMBERS – A “HUGE MISS” (Mish Shedlock, Global Economic Advisors)
“Manufacturing is in contraction and the economy continues to weaken. Given the plunge in new orders and backlog of orders, jobs and the overall economy will likely weaken as well. Expect that trend of 48 months of economic growth to break next month.”  Story at Global Economic Advisors at…

Tuesday, the S&P 500 closed down 0.6% to 1632 (rounded).

In a surprise, VIX fell 0.1% to 16.27.  Normally a half-percent down day would cause VIX to rise.

Internals continue down.  The 10-dMA of breadth is now down to 40% of stocks advancing.  (Below 50% is a bad sign.)  New-high/new-low data looks bad too.  There was improvement in the internals when compared to the recent low 2-days ago so it will be interesting to see if this is considered a buy-signal by some of the technical tea-leaf readers.  I don’t, but we’ll see.

Tuesday, the overall NTSM analysis switched to SELL at the close, based on SENTIMENT and VOLUME.

The Sentiment indicator remains extreme negative at 72%-bulls for the 5-day moving-average at Monday’s close. 

The Volume indicator is a variant of on-balance-volume and volume has been to the downside enough to push this indicator to a negative value.

The VIX indicator is still neutral, but it is very close to a negative reading. 

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.