Ian Woodward's Investing Blog

The Hindenburg Omen did NOT Volley & Thunder

              

Those who follow my musings, including the large number of Hindenburg Omen followers I have as a result of my early warnings back in November 2007 of potential Market Tops, will strike a chord with this Blog Note today.  I value the mention in Wikipedia of one of the Blog Notes I wrote back then which has attracted a lot of attention from those followers over the years and especially of late.  It’s called “The Hindenburg Omen Signals between 2005 and 2007.”   I knew something was astir yesterday when I noticed a  large number of “hits” on the blog from the Hindenburg contingent, including four inquiries regarding the possibility of a Hindenburg sighting!

As you are well aware, my work looks for the extremes in Market Internals or as John Bollinger would say “The Fat Tails” ends of the Equation, i.e., the unusual Impulse Signals that the Internals of the Market give from time to time.  I realize that to some of you that the “mish-mash” of terms you have had to learn may have little meaning, but I also believe that over time these very signals have been a god-send to us who now see their value.  That’s part of the fun.  Terms like Bingo, Bango, Bongo, Eureka, Phoenix, Kahuna, and Hindenburg Omen are now part of the vernacular and can only be found to help you by using the HGSI Software.  They help in understanding the moods and emotions that rule the Market from Euphoria to Fear, Capitulation, Hope and Optimism to name a few.

So, let’s start with the Definition of the Hindenburg Omen:

Please understand that a single Hindenburg Omen (HO) “firing” does not constitute a confirmed condition…it requires a minimum of two within 36 days, so even if we were to have a spurious signal it is highly unlikely that we will see another one given what has just transpired yesterday.  Furthermore, these signals come in bunches at tops in the market usually after Long Rallies of at least a couple of years or more.  In addition, it would be extremely unusual for one to get such a signal after having just tolerated a >17% Correction in the market only a couple of months ago. Yes, of course, we have seen a spurious Hindenburg Omen fire but they are to be ignored.   Here for the record was the last time we saw such signals in droves, despite what you might read elsewhere on the Internet:

Now as for yesterday, you can see we have a clean slate.  The 52 Week Lows were not quite enough to meet the criteria, and the 52 Week Highs were more than double the 52 Week Lows, thereby violating Rule #5.  Of course times have changed since these rules were made several years ago, especially with the High Frequency Trading (HFTs), doing their stint…or should I say stunt?!  If the market continues to deteriorate, then the chances of the NYSE 10 Week Moving Average continuing upwards is mighty slim to nil, and will also negate any chance of us seeing multiple HO’s any time soon:

My Good friend and partner, Ron Brown, who does a Weekly Report which you can get at
http://www.highgrowthstock.com/WeeklyReports/default.asp nets out the current situation as a Trendless Market:

However, that said, I do have a new “Fat Tail” Measurement of Euphoria using %B Buckets to Identify Early Warning Signs of a Correction in my Newsletter which will be out this weekend.  I will leave you with the following status of the tug-o-war which the Bears are winning hands down.  Remember that what you are seeing is the Percentage of S&P 1500 Stocks which are Above (green) and Below (red) the Middle Bollinger Band of %B = 0.5.  The Bears have it by a whopping 77% to 23% as of yesterday:

                         

Be very cautious how you play this market until you see which way the wind is blowing, but for the moment it is in your face.

Best Regards, Ian.

5 Responses to “The Hindenburg Omen did NOT Volley & Thunder”

  1. Hindenburg Omen Says:

    Hi Ian,

    Even though 8/11/2010 did not generate the H. Omen, today, 8/12/2010 did generate the signal. I think the odds are high we will get one more within 36 days and confirm today’s signal. What are your thoughts?

    Thanks!

  2. ian Says:

    Hi Blaine: . It is on thin ice as the 50-dma (10 Wk MA) is only 1 point above its previous day’s reading (between friends). Certainly a second one could happen, though that scenario says that there will need to be a major turn up in the NYSE from here. At the moment it is touch and go, especially since the 50-dma (10-Wk MA) is almost flat. The next several days will determine if the Bulls have weathered the storm and can push the NYSE Index higher.

    A quick glance at the statistics of previous triggers going back to 1998 indicates that the vast majority of Omen signals occurred when the 50-dma was well above the 200-dma. The closest events that would match the expected scenario for two signals within 36 days was back in 3/26/02 when the Market had gone sideways to slightly up prior to that for all of four months. The second signal was on 4/29/02, with the former signal having the 50-dma just slightly above the 200-dma and the latter just slightly below (40 to 90 points between the two Ma’s). The Market then went down hard until 10/02. There has not been a single other HO since then where the 50-dma was way below the 200-dma as it is now…in fact as you know most signals are at Market Tops and with the 50-dma much higher than the 200-dma…which makes sense. Currently the relationship is a whopping 250 points between the two with the 50-dma way below the 200-dma. It will take a strong Bounce Play and soon.

    I suppose anything can happen with a strong up day soon…but the odds are slim, based on past history.

    Best Regards, Ian.

  3. Hindenburg Omen Says:

    Hi Ian,

    Thanks for your insight and historical comparisons. Tonight it looks like the German/French GDP numbers are going to give us a strong up open tomorrow (8/13). Perhaps we will get another H.O. soon as the 50-day attempts to hold its upward slope. And I like the comparison to 2002. It has a lot of parallels with today’s market. Bear market low 2009 (vs. 2001). Big rally into 2010 (vs. 2002). Then final plunge. So…. you never know, but it is interesting and worth keeping an eye on.

    BTW, I was around your site back in 2007 and 2008. You absolutely owned the H.O. signal! You are the best.

    Please keep up the good work 🙂

  4. Randy Nelson Says:

    Hi Ian,

    The Hindenburg Omen triggered this week is getting a lot of attention. I believe James Miekka put together the original recipe for the H.O. I have read more than a few commentaries on H.O. the past couple of days, one I thought was quite interesting is at this link:

    http://www.mcoscillator.com/learning_center/kb/special_market_reports/hindenburg_omen_signaled_but_also_not/

    Randy

  5. ian Says:

    Hi Randy:

    I really appreciate this input, and I thank you very much. You are quite right that James Miekka put together the original recipe in concert with Kennedy Gammage. As I understand it they built on earlier pieces that Norman Fosback had done, but Meikka is the one who came up with the full concept for the HO.

    I encourage all to read the link which Randy provides as it clarifies much of the confusion we have suffered from these last three days.

    Many hands make light work, and I appreciate the feedback, Randy.

    Best Regards, Ian.

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