Wayne's take on the Hindenburg Omen Signal（ZT）

bigbadwolf

Monday, Aug 16, 2010 1   The Hindenburg Omen Signal flashed a sell signal this week and will draw a lot of attention this weekend.  If you google the signal, http://en.wikipedia.org/wiki/Hindenburg_Omen  you will see that several of the criteria are predicated on a large number of issues making both New Highs and New Lows on the NYSE composite, a phenomena that I have researched and written about in the past.   A reader ask for my take of the signals implications today.  I thought I would pass along my response to him. The NYSE composite index is comprised of approximately 3200 issues of which about 50% are non operating companies, many of which are interest rate sensitive bond funds.  Thoughout the last decade this has been overlooked by many analyst for two primary reasons.   1) It is generally not an issue, because most of the time, bonds and stocks move in the same direction, often with bonds leading stocks which was very convenient. 2) NYSE Composite data is very available, listed in the financial sections of most newspapers and on most financial web sites, while tape data on an index such as the S&P 500 or NYSE common stocks are not because they do not have a parent exchange conveniently computing their statisitics each day.   At this point in stock market history, specifically the last week, you have a Draconian disconnect between bonds and stocks an event that normally happens when you get historically low interest rates resulting from recessionary and deflation concerns.   This has resulted in a large numbers of issues making new highs on the NYSE, 95% of which are interest sensitive funds.  At the same time a large number of actual stocks are making new lows, incorrectly suggesting confusion in the equities.  See the below link for a list of the Wall Street Journal's list of 52 week New Highs and New Lows on August 13 to get an appreciation for the issues being listed as New Highs each day. http://online.wsj.com/mdc/public ... inyse-newhighs.html If you examine  the S&P 500 or the Nasdaq index you will see this is not the case for predominantly equity only indexes.  Below is a table showing New Highs and New Lows on each of the three Indexes for the previous week.                  NYSE    S&P 500    Nasdaq            NH  NL    NH  NL    NH  NL Aug 13   147 54     3  13    16 122    Aug 12    92 81     1  27    14 156    Aug 11   105 67     1  17    10 133    Aug 10   201 30    17   6    45  68      Aug 09   295 14    24   1    68  31      Notice that on Wednesday and Thursday (Aug 11-12), the NYSE showed more issues making New Highs than New Lows.  This is an incredibly misleading equity statistic because there were more than ten times as many issues making New Lows than New Highs on both the S&P 500 and Nasdaq indexes. I am always leary of stating that this time is different, but I don't see the Hindenburg Omen Signal in play using any index of equity only issues, which is not to say that the market can't go lower for other reasons.

bigbadwolf

$NYSI weekly showed a dead-cross.
No reason to be bullish at this time, though.

Cobra

Thanks. I mean it.

bigbadwolf

回复 3# Cobra


      
    生日快乐！ 希望今后HT 大吉大利， 老蛇家庭幸福，事业兴隆。

Rosemary1

The fact that so many people are talking about this warns  failure of this omen this time.

妞妞

thanks

babyruth

Ding!

actionverte

THANKS A LOT

bigbadwolf

Has the Hindenburg Omen Laid the Foundation for the Next Wall of Worry to be Climbed?

Never has any of my daily commentary generated more comments from readers than my attempt to debunk last week’s Hinderburg Omen signals.

I have been questioned every day since about it and the potential significance of repeat signals.

A couple of additional comments to clarify my thoughts on the subject:

I have respect for indicators that measure, what I refer to as, confusion in the markets.
To the best of my knowledge, Norman Fosback (Stock Market Logic) laid the groundwork for this analysis back in 1979 with what he termed the HighLow Logic Indicator.
Gerald Appel’s name get’s thrown in as well, but in his book, ‘Stock Market Logic’ (which I highly recommend), Fosback claims credit.
Jim Miekka, a blind mathematician, who resides in Tampa Fla, came up with the set of rules for the Hindenburg Omen in the mid 1990’s.

I personally backed into what I refer to as confusion analysis when attempting to come up with a tape measure that was the antithesis of the various thrust signals I was surveying in my “Planes, Trains and Automobiles” paper.
I have made some modest enhancements to the original approach that attempts to take into consideration the magnitude of the trailing trading range but my contribution to this area of research is tertiary in comparison to the previously mentioned developers.

But for the handful of readers who think I’m an expert on the implications of the HO signals, let me try to clarify my current position.

I have no qualms with the HO in itself, my area of concern lies simply in the current state of the index on which the signals are being generated and whether the signal is in play.   In case you missed the original,

http://www.tradersnarrative.com/hindenburg-omen-why-it-is-different-this-time-4558.html

The Hindenburg Omen requires two separate days in which both New Highs and New Lows are at least 2.2% of total issues traded within a 36 day period.
There has not been a single 2.0% day on either the Nasdaq or the S&P 500 in the last two week period in question and from what I read from other respected analyst, neither on the NYSE equity only (Common) index.   Again, not to say that we can't go lower, but in my opinion, the HO will not be the tailwind if we do.

What I find most interesting about the whole HO bugaboo is how the media is not going to pass up an opportunity to exploit such sensational headline fodder.   If you goggle it you will see it is everywhere.  It is becoming my opinion, that the misguided HO story may provide the foundation upon which the next Wall of Worry to be climbed is structured and as long as I am long the market, I hope to continue to read HO headlines and continue to get concerned letters from readers regarding its impact.
That is, at least, until we see the signal flashed on an index other than the NYSE composite.

Regarding negative sentiment, my friend Robert Babak at Trader’s Narrative will post his weekly survey of sentiment indicators on Saturday.
If you are not familiar with his post, it is worth a visit, particularly his weekly sentiment review on Saturdays.
Similar measures are recorded weekly in Barron’s Market Laboratory.

This week’s numbers may not have the full impact of Thursday’s big down day reflected, but I can see that the 10 day equity put call ratio is at its highest level (0.68) since July 6th, the day before the last major surge upward took place.

Diver

Thank you so much. I thought I should dump all my stocks and buy indices puts. Now I am less worried.

6th-Sense

回复  Cobra


        
    生日快乐！ 希望今后HT 大吉大利， ...
bigbadwolf 发表于 2010-8-20 17:59

    你要嘱咐老蛇＇三妻四茄五衣太＂。。。肯定高兴。。。要是俺有3+4+5 多好哈。。。周一到周六，每天陪两，周日累了自个睡大觉。。。。

itsme

回复 1# bigbadwolf


   

nanosensor

Thanks for sharing

jamesmith

Thanks. I mean it.
Cobra 发表于 2010-8-20 17:50

    今天蛇老大生日? 生日快乐, 洪福齐天