Wall Street: The First Hindenburg Omen Confirmed

The feared Hindenburg Omen was Thursday confirmed in the US stock market as the number of new highs was 136, and new lows was at 69, according to The Wall Street Journal‘s interactive Market Data Center.

“The more confirmations, the scarier it gets from a technical perspective, not to mention the conversion into a self-fulfilling prophecy.”

Zero Hedge

The first omen was spotted on August 12th: “The indicator may suggest a savage equity downturn is imminent,” the famous analyst Albert Edwards at Societe Generale said then. Today,  a week later, the Hindenburg Omen has been confirmed for the first time.

Last week’s plunge in US stocks triggered a technical indicator known as the Hindenburg Omen that may signal a more severe selloff.

See: Feared Indicator Warns Of Catastrophic Stock Market Event

The market signal, named for a German zeppelin that caught fire and crashed more than seven decades ago, occurs when an unusually high number of companies in the New York Stock Exchange reach 52-week highs and lows.

The indicator last occurred in October 2008.  The signal occurred seven times in 2008 as the S&P 500 posted its biggest annual drop since the Great Depression.

The Hindenburg Omen must be confirmed with a second occurrence within 36 days to raise the alarm.

And that’s what happened today.

Self-Fulfilling Prophecy

“The more confirmations, the scarier it gets from a technical perspective, not to mention the conversion into a self-fulfilling prophecy  – like every other technical indicator,” Tyler Durden at Zero Hedge writes.

In addition; it must also occur when the NYSE McClellan Oscillator, a measure of market momentum, is negative.

Well, today’s were the McClellan oscillator at NYSE was negative at -83.6.

According to Wikipedia this is the following criteria of the Hindenburg Omen, calculated daily using Wall Street Journal figures for consistency:

1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows are both greater than 2.2 percent of total NYSE issues traded that day. Based on approximately 3100 NYSE issues, the 2.2% threshold is 69.
2. The NYSE 10 Week moving average is rising.
3. The McClellan Oscillator is negative on the same day.
4. New 52 Week Highs cannot be more than twice the new 52 Week Lows (though new 52 Week Lows may be more than double new Highs).

“The traditional definition requires each condition to occur on the same day, and be repeated within a 36-day period.”

“The occurrence of all criteria on a single day is often referred to as an unconfirmed Hindenburg Omen, because the indicator has a high false alarm rate.”

An Imperfect Indicator

To eliminate false positives some technical analysts have imposed the condition that the Hindenburg Omen

• must be triggered 3 times in a row within a month from the 1st triggering event for said initial trigger signal to be considered to be valid
• is only valid when “all tightly coupled triggerings are within a fortnight“
• will indicate a possible future downturn or correction, depending on the magnitude of any “one off” triggering

The creators of the signal have not fully explained the selection of the threshold value of 2.2% of issues traded.

Because of the specific and seemingly random nature of the Hindenburg Omen criteria, the phenomenon may be simply a case of overfitting. That is, by backtesting through a large data set with many different variables, correlations can be found that don’t really have predictive significance.

The Omen is at best an imperfect technical indicator that is a work in progress, in  most analysts view.

Anyway – here’s Jim Puplava talking about the mainstream media and how they spin the economic news  – and Max Keiser talks about the Hindenburg omen.
Recorded on August 14th 2010:

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Feared Indicator Warns Of Catastrophic Stock Market Event

This week’s plunge in U.S. stocks triggered a technical indicator known as the Hindenburg Omen that may signal a more severe selloff, according to analysts who follow charts to predict market moves. The market signal, named for a German zeppelin that caught fire and crashed more than seven decades ago, occurs when an unusually high number of companies in the New York Stock Exchange reach 52-week highs and lows.

“It’s an interesting name but what you really have as a technical background is a classic distribution phase in the market.”

Michael Riesner

The indicator last occurred in October 2008, according to UBS AG. On Friday yhe Standard & Poor’s 500 Index yesterday completed the biggest three-day decline since July 1, after an unexpected increase in unemployment claims added to evidence an economic recovery is weakening.

The benchmark gauge for U.S. stocks has dropped 3.4 percent so far this week as Federal Reserve policy makers said growth “is likely to be more modest” than they previously forecast.

The indicator may suggest “a savage equity downturn is imminent,” Albert Edwards at Societe Generale says. Edwards has told investors to favor bonds over stocks for more than a decade, according to Bloomberg.

“Equities are tottering on the edge as increasingly recessionary data becomes apparent. It would not take much to tip them over that edge.”

The Hindenburg signal was triggered yesterday as the proportion of stocks reaching new one-year highs and lows both exceeded 2.2 percent of the total listed on the NYSE, according to Michael Riesner, a technical analyst at UBS in Zurich.

The number of stocks at a 52-week high must not be more than twice the number marking lows, the technical theory also says, according to analysts.

The indicator is only valid in a rising market, as defined by the NYSE Composite Index’s rolling average value in the last 10 weeks.

It must also occur when the NYSE McClellan Oscillator, a measure of market momentum, is negative.

The Hindenburg Omen must be confirmed with a second occurrence within 36 days, according to Riesner. He says the signal occurred seven times in 2008 as the S&P 500 posted its biggest annual drop since the Great Depression.

“It’s an interesting name but what you really have as a technical background is a classic distribution phase in the market,” Riesner says. “It’s the classic tug of war between bulls and bears that you have there.”

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Euro-Tech's: What's Up? Or Down?

The European financial markets seem to have entered a limbo stage, as the uncertainty about Greece just won’t end. So, I guess it’s time to look at the technical charts and see if they’re telling us something.

“What’s clearly evident is that the volatility in stocks are decreasing, but rising sharply in the currency markets.”

The Econotwist

There’s been signs of a top in making in the international stock markets. Some analyst have warned of a mild correction of about 4 to 5 percent. But we’ve heard that one before, and the market have just kept on going. It seems to be more true in the U.S. than in Europe, thou. The European markets are – just like Europe itself  – much more diversified.

The Greek tragedy has turned in to a day time soap opera for most Europeans, as the political leaders still are still fumbling with a sustainable solution.

For investors it ought to be an excellent chance for reconciliation and perhaps a little restructuring of ones portfolio.

So, what’s moving where?

Let’s take a look at some basic charts.

First the stock market, using the German DAX as a point of origin.

The Relative Strength Index (14) is still in a rising trend we see in this chart for the last two months.

And it still have a  bit to go before the RSI is overbought and a downward reaction can be expected.

Amongst the investors, there’s also a significant overweight of optimists that believe the market will go higher.

As shown in the chart below, the bull forces (green) are still stronger than the bear force (red):

There’s still a lot of aggressive sellers out there, and investors with solid appetite for risks, the On-balance Indicator shows:

What’s worth making a note of, is the fact that the European stock market is trading in a more and more narrow trading range.

Using the Momentum Indicator, it looks like this:

This can be seen as a confirmation of the suggestion that the market is “topping out”, but can also be a sign of investors putting their equity positions on hold as they wait for some kind of development related to the Greek crisis.

What is more probable, is that the big money is not to be made in stocks over the next weeks (unless something unexpected happens).

So let’s turn to the currencies.

Volatility Spike In Forex

Using the Momentum Indicator on EUR/USD, we get a total opposite picture.

What’s clearly evident is that the volatility in stocks are decreasing, but rising sharply in the currency markets.

So, if you are a swing trader, I guess the Forex is the best place to be right now.

However, the problem with EUR/USD is that the number of trades are falling sharply, too, the On-balance Indicator shows.

This indicates a flight  into other currency combination.

But the RSI for EUR/USD can be worth taking a closer look at.

The index seem to have entered a negative trend at the beginning of the month, and recently tumbled through the floor of 30 pts, witch in turn triggered a reaction up.

The question here is; will this upward reaction last for a few days more?

Or will the euro continue it’s slow slide?

You’ll have to choose that bet for yourself.

The Nordics

Turning to back to stocks, and to the Nordic markets.

One of Europe’s leading technical analysts at Investtech.com writes in Thursday’s report to clients the following regarding the NASDAQ OMX 30 at Stockholm Stock Exchange:

“OMX Stockholm 30 Index has broken through the roof of the rising trend channel. This signals an even stronger growth rate. The index has support at around 976 points. RSI diverges negative towards the prices. This indicates a risk of a reaction down. The index is considered overall technical positive on medium term,” Investtech’s analysts concludes.

Over to Norway, and the OSEBX at Oslo Stock Exchange.

Investtech writes:

“The benchmark index is in a rising trend, and further expansion within this trading range is indicated. The index has marginally broken through resistance at about 384 points. An established breakthrough will indicate a further rise. The index is considered technically positive in the medium term.”

When it comes down to picking one single stock, Investtech’s choice number one is the shipping company Golden Ocean (GOGL).

The analysts writes:

“Golden Ocean Group Limited is in a rising trend and a continued positive development are indicated. The share price has broken through a resistance level and given a buy-signal from long-term trading range. The stock has support at about NOK 9,40. Volume tops and bottoms corresponds well with the tops and bottoms in the price. Volume balance is also positive, which strengthens the positive trend picture. The stock is considered overall technical positive on medium term.”

Here’s the brokerage firm Terra Markets’s latest analysis and recommendations for Oslo Stock Exchange.

Current estimates for major Norwegian companies.

Related by the Econotwist:

Global Markets: Worries About Earnings, Oil And Inflation

Markets Still Don’t Trust Europe’s Greek Aid Pledge

Teaching Pigs How To Fly

Goldman Sachs: “Damn American Bastards!”

Moody’s Downgrade Ambac Debt, Deals will be Affected

Norway’s Paper Giant; Still Not Out Of The Woods

NASDAQ OMX Launch INET Trading In Nordic And Baltic Countries

Norway Put Interest Rates On Hold

European Markets: Tumbling Dice

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