Equity Wednesday : The Hindenburg Buy Omen

Tired of all the Hindenburg Omens we have had over the years and decided it is perhaps time to put a positive slant to it.

Behold, the Hindenburg BUY Omen.

Yes. The recent one has been a beauty if you had timed it to buy at the 10% drop zone and caught the V-shaped rebound.

hindenburg Dec 2014Chart of NYSE Composite

And we have not 1 but 3 diamonds this time – 3 Dec, 5 Dec and 8 Dec.

Another 10% on its way ?

Well, if you had done the new moon-full moon Buy-Sell rule that I had suggested, you would not have done too badly for the S&P 500, at least and definitely reaped a windfall had you bought SHCOMP on 22 Nov and sold on the 5 or 8 Dec. https://tradehaven.net/market/equity-monday-sell-on-sunspots-and-on-full-moons/

This time could potentially be different.

As I pointed out last week, there is severe wealth destruction at work in the markets with oil prices down between 35-40% this year, dragging the prices of commodities down except for meat (including chicken), coffee, sugar and orange juice. https://tradehaven.net/market/equity-thursday-wealth-destruction-butterflies/

The wealth wiped out could be for real but is currently replaced by heightened valuations for tech stocks, banks and airlines etc, high grade bonds and oddly enough, Gold.

This December is a busy month because the accountants are working overtime, revising projections and their budgets according to the new oil prices and oil exporting governments are tearing their hair out as their budgets blow up which is a minor problem as they suffer the double whammy of depreciating currencies which screws up the budgets and current accounts as well.

And we have corporates, those O&G names, with a truckload of bonds to refinancing. JP Morgan going on record to say they expect quite a few defaults (err, about 40% of O&G related companies) to come. http://on.wsj.com/1y9tQnr

In the spirit of Christmas and bless Jim Miekka, the creator of the Hindenburg chart, this is a good time to sit back and wait for some capitulation (3 Diamonds this time !!)  ahead of the FOMC next week (18 Dec) and the next new moon on the 21st of December.



Hindenburg Omen (Bloomberg Definition)

The Hindenburg Omen is a combination of technical signals that together forecast the likelihood of a stock market crash.  The technical inputs are the10 Week Simple Moving Average, New 52 week highs on the NYSE, New 52 Week lows on the NYSE, and the McClellan Oscillator.

If, on the same day, the 10 Week Moving Average is rising, New Highs are greater than 2.2% of total issues traded, New Lows are greater than 2.2% of total issues traded, and the McClellan Oscillator is negative, then a Hindenburg Signal is indicated by a yellow circle.

Two such signals within a 36-day period is considered a Hindenburg Omen and is indicated by a red diamond. The Hindenburg Omen portends a serious decline within the next 40 days.