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Market Crash Fears Climb Aboard 'Hindenburg Omen'

Monday, 16 August 2010 12:24 PM Current | Bio | Archive

Maybe it’s only just a coincidence but the “Hindenburg Omen” appeared for the first time this year on Thursday when a confluence of well-defined data occurred in the numbers of the New York Stock Exchange.

The “Hindenburg Omen” is a technical indicator that foreshadows (at a 25 percent accuracy rate) when a stock-market crash is in the offing. Its creator, a blind mathematician named Jim Miekka, says now his indicator is now predicting a market meltdown in September.

Of course, as always we’ll have to wait and see after the appearance of a second “Hindenburg Omen” within 36 days, counting from Aug. 12.

The elements of the “Hindenburg Omen” are defined as:

• The daily number of new NYSE 52-week highs and the daily number of new 52-week lows must both be greater than 2.5 percent of the total issues traded that day.

• The smaller of the 52-week highs and lows must be greater than or equal to 79 (or 2.5 percent of 3,168 issues).

• The NYSE's 10-week moving average must be rising.

• The McClellan Oscillator, a measure of market fluctuations, must be negative.

New 52-week highs can't be more than twice the new 52-week lows. This condition is absolutely mandatory.

A confirmed “Hindenburg Omen” occurs if a second (or more) “Hindenburg Omen” signal occurs during a 36-day period from the first signal.

Now, all these (I admit, somewhat complex) reference points occurred for the first time this year on Thursday, Aug. 12.

There were 92 companies that hit new 52-week highs, or 2.9 percent of all companies traded on the New York Stock Exchange.

There were also 83 new lows, or 2.6 percent of the total. Each number must exceed 2.5 percent for the “Hindenburg Omen” to occur.

Other factors, like a rising 10-week moving average for the NYSE and a negative McClellan Oscillator, were also in place.

By the way, the “Hindenburg Omen” occurred before every market crash since 1987, but it also must be said, it has also appeared in many other times without an ensuing significant market downturn or crash.

Even when we take into account that only about 25 percent of “Hindenburg Omen” appearances have occurred before stock markets crashed, it now also is a serious warning that highlights clear signals of definitively deteriorating internals in the N.Y. stock market.

Chances are rising that a very important inflection point could not be that far away.

For investors who are still overweight in stocks, I would prefer to go dancing close to the door. Of course, it’s everybody’s choice to do what he or she thinks is best.

Meanwhile, I’d like to return to why I expect the dollar to go substantially higher in the foreseeable future. Dollar bulls were counted as 13.2 percent on Friday, Aug. 13.

Remember, there were 96 percent dollar bulls on a 10-day basis and 98 percent dollar bulls on a daily basis shortly before the high of 88.71 on June 7.

The current renewed upward trend in the dollar is, at least in my opinion, clearly what’s called a third wave, which suggests that the 10-day dollar bulls’ sentiment index will match and exceed the previous peak.

So, at least according to this measure of trader optimism, the dollar index has a long, long way to rise prior to sentiment pushing to a new extreme.

No doubt, this will confound the people who worry about hyperinflation and who insist that the dollar is on the cusp of collapsing.

In my opinion, I’m also convinced that all “fiat” currencies will indeed eventually trend toward worthlessness, but first the U.S. dollar will rally strongly in conjunction with disinflation before it starts its next major slide to that big fiat currency graveyard somewhere in the future.

Never forget that deflation or some kind of a “light-deflationary” environment would mean strength for the dollar and be a negative for stock and other markets.

Just look to the rise of the Japanese yen during its two-decade deflationary environment when it moved up from 63 in January 1990 to 115 at the end of last week and the Japanese stock market index, the Tokyo Nikkei Average that came down from 38,900 at the end of 1989 to 9,2500 at the end of last week.

In this coming dollar-up period, near-term highs in the dollar index won’t be the most important to look at, but instead, end of pullbacks should become very interesting and present interesting opportunities to add to existing “long dollar” positions.

Yes, I see the dollar substantially going higher in the foreseeable future.

To put it simply, as I have done here before: “Dollar up means most of everything else down.”

No, this time won’t be different.

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Maybe it s only just a coincidence but the Hindenburg Omen appeared for the first time this year on Thursday when a confluence of well-defined data occurred in the numbers of the New York Stock Exchange. The Hindenburg Omen is a technical indicator that foreshadows...
Monday, 16 August 2010 12:24 PM
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