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Thread: weekend commentary - the Hindenberg Omen

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    Default weekend commentary - the Hindenberg Omen

    there are a lot of 'technical indicators' available which profess to predict US stock market moves. One that has been very 'popular' of late is called the Hindenberg Omen ...








    IMHO no 'technical indicator' should be trusted as being 100% accurate. However, the Hindenberg Omen does have a 100% track record of predicting serious market pullbacks back to the 1980's. We have also now had three Hindenberg Omen's in a row during the month of June, the latest on the 17th, which is very rare ...


    Answers.com sums up the Hindenberg Omen situation rather concisely ...

    (snip)"Conclusions

    The probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen within the next 41 days after its occurrence is 77%, the probability of a panic sellout is 41% and the probability of a major stock market crash is 25%. The occurrence of a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down, although every NYSE crash since 1985 has been preceded by a Hindenberg Omen."(snip)


    based on Hindenberg Omen theory, the US stock market declines of the past week may NOT be the end of this 'readjustment', and there are another 30 days or so to run in the current Hindenburg Omen high risk period.

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    Default Re: weekend commentary - the Hindenberg Omen

    Gulp...

    So what is a sane investor to do? I am losing sleep reading all this stuff lately and even my Vanguard holdings (kept pretty much to a "model portfolio" for long-term/medium risk lately...)are losing ground.

    It's getting scary.

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    Default Re: weekend commentary - the Hindenberg Omen

    The signs have been out there for those who were watching and paying attention. At this point anything may happen, I believe. We are in a bear market, but all bear markets have rallies too.

    If you are losing sleep over your investments, maybe it makes sense to look at your portfolio liquidate some of the stocks on strength and stay in cash until things are more clear? Or hedge your risks better? I too agree with Melonie that the gold run still has legs.

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    Default Re: weekend commentary - the Hindenberg Omen

    Retiredangel, take a look at this chart:

    http://bp0.blogger.com/_FiNhXIv5StE/...1600-h/SPX.png

    If you believe in technical analysis, it's quite possible will have a quick bounce (4th of July is coming which might bring W Street in a happier mood), but then a shart move down is quite likely. Please DYOD, but this chart shows things may get uglier. Again, I am no expert, but I too would be worried at this point if I was long the market.

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    Default Re: weekend commentary - the Hindenberg Omen

    Thanks for the info...I appreciate the reply!
    Spent a lot of the day re-grouping and I think I'm "better now."Have a few changes to make tomorrow and I hope it won't be too late when they go into effect.
    Many so called experts are predicting a somewhat "pivotal week" (actually 4 days) ahead.
    It's just hard to watch what I worked hard for not working well for me in return lately.I have no debt but also don't work anymore.
    All the reading,chatting about,and analyzing isn't changing the fact that we are in some un-charted territory currently.
    I'm not a sophisticated investor in that I pretty much follow the "rules of the game" which until lately,have provided me with a solid return/income.
    I totally look up to the people here who are so "in the know!" I used to rely on brokers and managers but honestly? They ended up costing me more than they were worth in the long run.

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    Default Re: weekend commentary - the Hindenberg Omen

    You could also buy protective puts on the stocks you own to manage risks. There are also other hedging strategies, eg. shorting the markets via ETFs. Some other people on this board may give you better advice.

    I totally understand how painful it would be to lose what you worked so hard for. We truly are in unchartered territory right now. Not only one needs to be concerned about the performance of their portfolio, but also the solvency of the broker/bank where their money is kept! Add currency risks to that and possible changes in legislation towards taxes, capital controls, etc.

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    Default Re: weekend commentary - the Hindenberg Omen

    in general 'holiday' weeks are an ideal time for market 'manipulation' (if you believe that such things are possible). The reason of course is that a lot of investors are taking the entire week off ... trading volumes are light ... thus buys and sells usually have far fewer forces to deal with on the opposite side of the trade.

    I would concurr with Adelina that, although everyone needs to do their own Due Diligence, there are all sorts of indications that a Bear Market has arrived. If that is the case, investing strategies like 'buy and hold' and 'dollar cost averaging' definitely need a second look !!!

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    Default Re: weekend commentary - the Hindenberg Omen

    ...working on dollar cost averaging as we speak.

    Thank y'all!

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    Default Re: weekend commentary - the Hindenberg Omen

    Be careful. The market couldn't hold on to it's (small) gains today, and unless some positive spin turns things around SOON (although maybe temporarily), the support level may be broken at any time now, and then.. look out.

    I guess everybody is waiting for ECB rate decision this Thusrday. If they raise rates, dollar is cooked.
    DYOD.

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    Default Re: weekend commentary - the Hindenberg Omen

    ^^^ and based on public comments by Jean Claude Trichet of the ECB, EuroLand's latest 4% inflation data is 'tres malade' ... meaning that the probability of an ECB interest rate hike is now quite high. As Adelina points out, if the ECB raises rates, this will likely mean a whole lot of consequences which are bad for Americans ...

    - the US dollar will be further devalued internationally, translating into an immediate price increase in all worldwide commodities i.e. oil, food, precious metals, base metals (and an eventual price increase for products which use those commodities as an 'input')

    - the investment losses for foreign holders of US stocks and bonds will be a double whammy - first they will lose on comparative interest rates paid on Euro bonds vs US bonds, Euro stocks vs US stocks etc., and next they will lose because a US dollar exchange rate move will represent a 'home currency' loss for European investors even if the US dollar denominated price of their American company stock shares doesn't decline.


    Also, on the subject of 'uncharted territory', an old friend with many years experience as a professional investor reminded me that there IS a chart that correlates pretty well to what's happening to the DOW in June of 2008 .... that chart is for the DOW in June of 1930 !!!




    FYI June 1930 corresponds to Points #15 - #16 on this chart ... see for a full description

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    Default Re: weekend commentary - the Hindenberg Omen


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    Default Re: weekend commentary - the Hindenberg Omen

    great 'table' at your link, Adelina !

    Another 'curious' point comes out of your link article ... that the US FED has intervened at the 'last minute' on a whole bunch of past occassions in order to stop the generation of a Hindenburg Omen. However in the most recent case, the FED either chose not to do so, or (probably more likely) knew that they did not have sufficient 'ammunition' at their disposal to continue bucking a mounting trend of US corporate losses / foreign investors liquidating their US stock shares. This is a NASTY setup for US stock markets for the balance of the summer ...

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    Default Re: weekend commentary - the Hindenberg Omen

    what do you define as a major stock market crash in terms of percentage points?

    I mean, 1929 was considered a major crash and so was 1987... but there was clearly a big difference between the two.
    Oh Canada, we stand on cars and freeze...

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    Default Re: weekend commentary - the Hindenberg Omen

    I wonder if the Fed will let the markets fall in order to save bonds? If it's true that there are not many buyers for US bonds, the Fed will most likely use whatever "ammunition" it has to not allow bonds to collapse even if the stocks were sacrificed. Since the Fed is a private organization and it's primary goal is to keep its shareholders happy, will they care if your 401K gets a 30% or more cut when they HAVE TO save the bond market.

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    Default Re: weekend commentary - the Hindenberg Omen

    what do you define as a major stock market crash in terms of percentage points?
    to answer your question, check out the chart at Adelina's link. A significant number of major declines were in the 15% category. But the 'major crashes' of 1987 and post 9/11 exceeded 30%. Since the confirmed Hindenberg Omen signal two weeks ago, markets have already pulled back about 6%.

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    Default Re: weekend commentary - the Hindenberg Omen

    this is what my 1st year economics professor had us use:

    A Recession: is 2 quarters of negative growth... ie., 6 months.
    A Correction: is when the stock market loses 10% or more IN ONE DAY.
    A Crash: has no 'official' definition, but still must be a greater than 20% loss in ONE DAY.

    Now, we all know that the NEBR determines what a recession is and they don't always use the 2 negative quarter thingy... so, my guess is that correction and crash terms aren't only blurred in the media, but also by so-called financial experts as well. it can get confusing and I partly think the meaning of the terminology is blurred to bring more attention to an article than it really deserves for whatever reasons...

    IMO, Right now I think there is too much 'emotion' in the markets which is both scarry and on the other hand is when opportunities are presented.
    Oh Canada, we stand on cars and freeze...

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    Default Re: weekend commentary - the Hindenberg Omen

    BTW- though the HO is only really a 20/20 hindsight indicator, the Hindenberg Omen is an excellent indicator to tell you when to get alot of money ready to 'enter the market' not avoid it... the markets have proven to always rebound following the HO, which means significant upside potential. but, then again, like always it's a challenge to figure out when the bottom will occur. It doesn't give certainty, rather narrow in on odds. but, one has to realize, that though the HO spots a potential 27% chance of crash or whatever... that means a 73% chance that there will be absolutely NO crash... so, instead of hydrogen, there might be a little 'hot air' in this indicator...
    Oh Canada, we stand on cars and freeze...

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    Default Re: weekend commentary - the Hindenberg Omen

    ^^^ as I said at the beginning of this thread, no technical indicator (including the Hindenberg Omen) is 100% reliable.

    I also agree that the HO can also indirectly signal an impending market bottom, at which time it could be a good idea to 'reload' on stocks. However, I would take this with a proverbial 'grain of salt', since after previous market 'crashes' it has actually taken many months or even years for the market to actually bottom out and turn up again ( 2 1/2 years in the case of the Great Depression ) ... with early bird re-investors quickly discovering that they made the move too soon thus eating additional losses.

    As to the NEBR or any other 'official' definition of a recession, in the vast majority of cases the 'official' announcement comes many months after the recession itself. Personally, I like to gage economic activity by FED's Beige Book, by the Purchasing Manager's index, by the Shipping Activities index, and other yardsticks that are DIRECTLY correlated with basic business economic activities ... as opposed to NEBR or other 'official' stats which are usually Hedonically adjusted, seasonally adjusted, 'birth-death model' adjusted, or otherwise 'manipulated' at least in the short term.

    though the HO is only really a 20/20 hindsight indicator
    it is very arguable that the Hindenberg Omen is a short term forward looking indicator ... anybody who liquidated their US stock holdings upon confirmation of the HO signal on June 18th is 5% richer today !

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    Default Re: weekend commentary - the Hindenberg Omen

    check out the chart on this page:
    http://www.stocktiming.com/Monday-DailyMarketUpdate.htm

    I am not advertising this site. I believe I've seen a similar chart somewhere else, but couldn't find it to show you. If history repeats itself, we have a "nice" target to "look forward to".

    BTW, I spoke with a few customers at work how they feel about the current bear market. To my surprise, most of them are NOT very concerned although they ARE losing money. They are NOT selling their 401Ks and waiting for a rebound!

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    Default Re: weekend commentary - the Hindenberg Omen

    ^^^ yup, the 'stoch' chart really paints the picture well !

    Also agreed that the vast majority of 'Joe Sixpacks' don't bother paying attention to their 401k activity until they have taken a serious 'haircut'. This was the same (not paying daily attention to their stock portfolio, continuing to hold, and crossing their fingers for a reversal ) in the fall of 1929 and in 1987 BTW. However, once Joe Sixpack DOES start to liquidate and cut his losses, 'look out below' as there are NO buyers other than lowball speculators on the opposite side of these 'distressed sales'.

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