We’ve seen several articles warning of stock market disaster, because the Hindenburg Omen signaled a “crash” on the NASDAQ recently. My version of the Hindenburg Omen, based on the S&P 500, is not close to signaling a warning. The last time it did was during the quick 6.1% drop that started at the end of July earlier this year.
Here’s a quote by Barry Ritholz on the Hindenburg: “Consider as an example the ominous-sounding Hindenburg Omen, a technical analysis that purports to signal the likelihood of a market crash. That’s exactly what it’s been doing — unsuccessfully — since 2010. This sort of recession porn allows people to confirm their existing prejudices. After five years of money-losing forecasts, the Hindenburg Omen’s following among traders is fading.” From Ritholz.com at…
https://ritholtz.com/2015/04/beware-of-indicators-that-predict-nothing/
I saw some trader-board comments that the S&P 500 was stretched way above its 50-dMA and its 200-dMA. The Index is now 3.7% above its 50-dMA. That is somewhat high, but the 200-dMA is only 7.3% above the 200-dMA. These stats tend to support the thesis that a retreat of 3-5% would be expected. Numbers at these levels occur fairly often, but they are about the same as the ones we saw at the top of the 20% correction in 2018 so perhaps that’s why there is concern.
MACD of Breadth is still negative, but MACD or Price is ok for now.
RSI has been negative for 7 straight trading sessions. We saw a similar cluster of overbought RSI readings before that quick 6% drop that started 26 Jan 2018. At that time, we had a -4 reading for the sum of top/bottom indicators. Now we have a -1; only RSI is overbought so this doesn’t look like much of an issue yet. Bollinger Bands are still not overbought.
I don’t think we can make very short-term predictions anyway, so unless we see more negative indicators, I won’t make any additional allocation changes. (I did exit a 2xS&P 500 trading position earlier.)
My daily sum of 20 Indicators improved
from -3 to -1 on 15 Nov (a positive number is bullish; negatives are bearish)
while the 10-day smoothed sum that negates the daily fluctuations slipped
from +36 to +25. (These numbers sometimes change after I post the blog based on
data that comes in late.) A reminder: Most of these indicators are short-term.
We have the statistical analysis of price-volume moves that continues to suggest a top within 20 days. This stat also suggests a 1 to 2% down day is coming. (I don’t use this in my topping indicators because its timing is poor. It’s hard to trade an indicator that warns of an event sometime in the next month or so.)
The S&P 500 closed at or above the upper trend-line on a statistically significant up day Friday. That just means that the price-volume move exceeded my statistical parameters. Statistics show that a statistically significant up-day is followed by a down-day about 60% of the time. It also sometimes indicates a top. This is probably signaling the start of a minor dip of some kind. However, I am not too worried; both Short-term and Long-term indicators are currently neutral.
I remain bullish long-term, but I am paying attention short-term.
