Groundhog Day : The Jaws Of Death & Hindenburg Again ? May 2014 Edition

2 people told me today that they are a tad confused about what to do in the markets and that they cannot see any clear trend developing.

What about the 10Y US treasuries ? We are seeing its lowest yield year to date just when the S&P 500 hit a new record high 2 days ago.

It is not that hard to imagine when JPM’s active clients survey showed that traders were short US treasuries for 10 straight weeks, the longest stretch since over a year ago.

Why are people confused ?

Because in the past, our heads used to correlate USD strength with higher US yields and higher stock prices. This time round, US bond prices, USD and stocks are all going up together in one happy American dream come true.

It is creepy for me because in May this time last year, we had the Jaws of Death and Hindenburg Omen which I wrote about in Hindenburg Headache and Jaws of Death – S&P 500 https://tradehaven.net/market/hindenburg-headache-and-jaws-of-death-sp-500/.

And 10Y yields did shoot higher past May.

Last year’s Hindenburg corrections were mild ones which cannot be called corrections. BUT WE GOT OUR FIRST SIGNAL AFTER OVER 9 MONTHS ! This is not a full omen yet because we need another signal to complete it yet look at the latest yellow dot (dated 6 May 2014).

And the latest Jaws of Death is yawing.

Not to panic. The last 2 Jaws of Death were snapped shut when the 10Y bond yields fell in 2010 and rose last year. Equities did not react.

We saw this all in May last year and I am honoured to be presenting it to readers again, uncannily, creepily or spookily again this May.

Good luck !

 

Definitions :

Jaws of death is a term coined by trader Larry Williams that describes when a situation when equities are rising while bonds are weakening.

Williams observed a phenomenon that happens when equities and bond prices diverge. According to him the disparity (which B  he calls the jaws) between the two tends to snap shut, hence he called the entire phenomenon the jaws of death. Usually the snapping shut action is achieved by a rapid and sharp drop in stock prices according to his model.

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.