The Hindenburg Omen – “Omen-ous” or Not?
EWI Chief Market Analyst Steve Hochberg Sheds Light on this Technical Indicator
By Michael McNeilly
Tue, 17 Aug 2010 15:15:00 ET
Last week's volatile market action coincided with a technical signal called the Hindenburg Omen whereby a relatively high number of new highs and lows in individual stocks occur at the same time.
This indicator instantly gained an enormous amount of media attention. I thought it might be of interest to readers so I sat down with Steve Hochberg, EWI's Chief Market Analyst to get his unique perspective and insight.
Michael McNeilly: Steve, recently a market indicator called the Hindenburg Omen has been in the news, what is going on?
Steve Hochberg: Discussion of this indicator certainly has been everywhere. Someone emailed us and said they even saw it mentioned on the front page of the Drudge Report! Look, headline-grabbing names grab headlines. Essentially it measures the fractured nature of market action. Over the years, we've discussed numerous times in our publications how a fractured market is oftentimes an unhealthy market. The multiple non-confirmations registered at the recent August 9 stock high, which we talked about in The Short Term Update, are another manifestation of this bearish behavior. The message is consistent with how we view the Elliott wave structure.
MM: Why are people interested in this particular indicator?
SH: That's a good question, and it speaks to a broader issue, viz., the "re-emergence" of technical analysis into the mainstream consciousness of market participants. In Prechter's Perspective, Robert Prechter discusses the timing of the popularity of technical analysis, of which Elliott waves, or pattern recognition, is the highest form:
"In long term bull markets, no one really needs market timing because the market is always going up. This was true during the 1950s and 1960s, a period of market strength. And it has been mostly true since 1982. From 1966 to 1982, though, the market was very cyclic, so investors couldn't sleep like babies with a buy-and-hold blanket like they do today."
The S&P 500 has a negative return over at least the past 12 years, so investors are naturally questioning the "broadly diversified, buy and hold" stance advocated by 90%+ of investment advisors. EWI subscribers are way ahead of the mass of investors because as the bear market progresses, the media should show increased focus on technical analysis, including patterns such as head-and-shoulders as well as trendlines, moving averages and, yes, even Elliott waves, just as they did during the last great bear market from 1966 to 1982. It will be an exciting time for those with even a cursory knowledge of the "technicals."
MM: So, what are you seeing now?
SH: Obviously we cannot give away our analysis, but the wave structure is clear, the myriad indicators we keep offer compelling confirmation and the market is accommodating our forecast. If readers have any interest in what this means for not only the stock market, but also all other markets, please give us a read to see if our work might be useful in helping to formulate your investment portfolio. We think it will be a worthwhile endeavor. Click here for more info!!!
The Summation Index threw the bears a curve today, printing a black bar, and putting the down trend in serious jeoperdy. It takes more then one bar reversing to signal a new trend, but is a big warning sign, if the SI continues to print black bars that start accelerating to the top-side we will be in a new up-trend
The VIX which has been a thorn in the sides on the bears, and the bulls best hope, is approaching support of the 200 day MA. The indicators on this chart are mixed, as they are on many daily charts today, with the MACD bullish, and the STO bearish. The RSI seems neutral on most charts, with a slight bullish look to it.
The short-term trend is neutral, as is the Trend finder so tomorrow will be an important day that could decide the longer term trend. Right now the indicators are equally divided with the short-term ones bullish, and the longer term ones bearish. It is when the longer-term indicators start turning bullish that the Trend Finder will follow through with bullish reading, however, since it is the short-term indicators that are bullish, they can turn much faster to bearish, then the longer-term bearish readings can turn bullish.
Breadth closed the day at 3.77:1, advancers on improved volume over yesterday's weakest volume of the year readings.
On the Hindenburg Omen, after the close there were 203, 52 week new highs, with 17 new lows, WAY out of the range now for a signal to get triggered, the SPX needs a good sell-off tomorrow and then it might have a change to get that second signal in.
For tomorrow, a break above today's high of 1100.14 gives the SPX a good chance to run up and fill that gap at 1115-1120 which would be a very bullish move to have that gap closed, and puts 1131 in play. And the bears need a break below 1075.16 to keep the longer term trend pointed down.
Click here for a live, and updated chart!!!
8:54, The bulls have the ball and are running with it, if the bears cannot get control back ASAP, a lot of resistance is going to turn to support, and the idea of the SPX in a 1-2, 1-2 down will be thrown out the window. The SPX has escaped the clutches of the bearish Fib fan this morning opening the doors for another test of the 1131 area.
another alarming piece of news for the bears is that breadth is currently running slightly below 6:1, advancers, this a strong!!!
7:30, The SPX behaved as expected this morning with a gap up to fill the old gap from August 12th and is now close to wrapping up the "C" wave of 2 up. The next spot of resistance on this chart is 1093.94 from a previous high or the iv of 3, of 1, down high, a spot that is very common for a 2nd wave to retrace to. A break below 1075.16 would most likely signal that the 2nd wave up has been completed.