Hindenburg Omen X3

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Jager06's picture
Jager06
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Hindenburg Omen X3

The third confirmation of the Hindenburg Omen since August 12th has occurred. That means four of them have happened since August 12th, with a couple narrow misses in the interim as well.

Simultaneously the DOW is down more than 4% since the first Omen. The Omen indicates a 77.8% greater chance of a 5% decline in the market in the following 4 months.

With four seperate Omens happening in the space of time that the markets also nearly reached the first most likely threshold of 5% drop, I suspect we are in for the slide of a lifetime. I don't have any data or statistics on the % of drop relating to the amount or proximity of Omens. That would be interesting.The chart I posted yesterday indicates a -5% GDP coming in the next 180 days, with a negative 7 to 10% since this years output high.

The flight to bonds that has been mentioned is another indicator of a bubble in the making. I still think a run in a commodity is going to flush money out of bonds, forcing the Fed to intervene temporarily to support bond prices. That blip of support will add confidence to the outflow, and the liquidity outflow will be sufficient to initiate the velocity necessary for hyoperinflation to occur, due to the Fed supported bond prices allowing a run to commodoties in general at that point. A very rapid switch from current stagflation to hyperinflation results in prices doubling the first week on food staples.

Please note that I am NOT an economist, or a trader. Just a news junkie who appreciates math, and I am seeing more and more correlation between the complexity of natural environments with the feedback loops inherant to free market economics. The same distortions that occur in a natural environment when an input becomes excessive, be it because of fire, or drought, or disease, occur in apparently in economics. The lack of free market instability to make natural economic corrections that is currently imposed by the central banking structure has created the distortions we are about to endure the consequences of.

 

 

r101958's picture
r101958
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Re: Hindenburg Omen X3

Thanks Jager, I was wondering if the first one had been confirmed and I guess it has. Not a good sign. I brought this up when the first omen was announced but nobody paid any mind to it here.

machinehead's picture
machinehead
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Re: Hindenburg Omen X3
Jager06 wrote:

The third confirmation of the Hindenburg Omen since August 12th has occurred. That means four of them have happened since August 12th, with a couple narrow misses in the interim as well.

Simultaneously the DOW is down more than 4% since the first Omen. The Omen indicates a 77.8% greater chance of a 5% decline in the market in the following 4 months.

With four seperate Omens happening in the space of time that the markets also nearly reached the first most likely threshold of 5% drop, I suspect we are in for the slide of a lifetime. I don't have any data or statistics on the % of drop relating to the amount or proximity of Omens. That would be interesting.The chart I posted yesterday indicates a -5% GDP coming in the next 180 days, with a negative 7 to 10% since this years output high.

Please note that I am NOT an economist ...

Congratulations ... if you were an economist, we'd pay no attention to you. Smile

It would be tough to extract the statistical significance of the Hindenburg omen, since it has several degrees of freedom, has occurred a limited and varying number of times before market slides, and so forth. Its underlying logic is that substantial numbers of new highs and new lows occurring simultaneously indicate uncertainty, and possibly signify fervent speculation (new highs) coupled with informed selling (new lows) -- a dangerous set-up, in which the long specs have to lose via the bottom falling out.

I'm reluctant to be a fire-breathing bear, because markets are biased to the upside, and there is tremendous official support now. But this chart which you posted in another thread is seriously ugly:

Not only is September the seasonally weakest month on an annual basis -- but also, in the 4-year presidential cycle, the August-October window in the second year (where we are now) is the low point of the idealized 4-year cycle. Examples: August 1982; October 1990; October 1998; October 2002.

Given that plug-ugly chart above, I'd place the probability at about 70% of a sharp slide over the next 6-8 weeks, as both GDP and stocks engage in a 'test of the lows' from late 2008-early 2009. 

In inflationary times, falling interest rates are bullish for stocks. But in our current Bizarro World zeitgeist, 10-year T-notes at 2.5% are screaming danger, even as their prices soar into Bubble territory. This all ends in tears, although stock investors get theirs first.

If stocks get smashed hard by October, long stocks / short bonds will be a monster trade for 2011.

Jager06's picture
Jager06
Status: Gold Member (Offline)
Joined: Dec 2 2009
Posts: 395
Re: Hindenburg Omen X3

I am just beginning to see daylight as far my own understanding of how the system "works" versus how a free market is supposed to work. I appreciate your taking the time to put this instance in simple macro terms for me. I suppose it is a matter of sorting through the chatter and picking some wise historians and chartists to follow if one is to be a successful investor.

But my question is now, is this yet another of a thousand cuts? Or can we reasonably expect a readjustment of politics and society to result from this?

 

Poet's picture
Poet
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Posts: 1891
Re: Hindenburg Omen X3

Hi.

I went to refresh myself on this interesting technical pattern on Wikipedia - and I believe there was one on August 12, then August 20, then August 24 for a total of 3 confirmations including August 12.

However, looks like Jim Miekka, the creator of the "Hindenberg Omen" has sold all stocks and plans on waiting on the sidelines for a bit before picking stuff up cheap.

Poet

Jager06's picture
Jager06
Status: Gold Member (Offline)
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Posts: 395
Re: Hindenburg Omen X3

Thanks Poet,

Looks like today would be another good reason to be on the sidelines.

 

machinehead's picture
machinehead
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Posts: 1077
Re: Hindenburg Omen X3
Jager06 wrote:

Or can we reasonably expect a readjustment of politics and society to result from this?

Secular changes (such as the transition to larger government and federal social benefits in the 1930s) are always a long-shot bet. They happen from time to time, but it's hard to predict when.

But the business cycle is always with us. With bond yields plunging and stocks weak, this is looking like mid to late phase recession. Sentiment is dark and may get darker. But new policy measures will emerge to lean against the weakness. 

We don't necessarily have to know what they are. But one way or another, the economic weakness will bottom out and a new growth phase will commence. People tend to extrapolate the present into the future. But when conditions get extreme enough, the future will evolve in the opposite direction.

dshields's picture
dshields
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Re: Hindenburg Omen X3

machinehead's graph is interesting.  2.2 trillion dollars were taken from home equity and dumped into the economy during the few years leading up to the top of the housing/credit/debt bubble.  when it burst it was truly cataclysmic.  the cataclysm is not over yet.  however, a lot of stuff happen over the last 20 years or so that is also effecting the outcome.  for instance, we exported millions of decent paying manufacturing jobs and hollowed out the middle class.  that is also having a major effect.  the government has made a number of poor decisions that are having big impact.  when you think about all the issues influencing the current and future economic situation it boggles the mind.  i do not believe there is a model in existence that is accurate.  people tried to maintain their standard of living though debt.  they could do it for a while by living off the equity in their homes - and they did.  i know lots of people who did that.  i know people who had crazy amounts of debt, amounts that would have been unthinkable until they could tap into their home equity.  that turned out to be poop and down it all came.  on the tv the media people talk like we took a dive but pretty soon there is going to be a growth cycle and it will all go back to being good again.  it is not going to happen.  70 percent or so of the economy is supposed to be consumerism.  that 70 percent is not going to be dumping 2.2 trillion bucks into the economy over a few years ever again.  that is over for sure.  so, we are facing a new normal.  the new normal is higher unemployment and a permanent lower standard of living in america.  globalism is also having a major influence.  for instance, in the IT industry, foreign competition has capped salaries.  your job will be outsourced if you cost too much or produce too little - at the drop of a hat by management who will get a bigger bonus for doing it.  think about that.  globalism is having a really really big impact.  we have an out of control government at the federal level and in many state and local areas.  the negative impact of that is huge.  so, you have the housing/credit/debt bubble, out of control government at various levels, globalism eating into our standard of living, increasing energy prices over time, and other stuff.  it adds up to a major big time problem(s) which we are not handling very well at all.  america is being downsized.  that is all there is to it.  the whole thing is getting squeezed down smaller.  and the squeeze is still on and we will keep getting smaller and smaller until some type of static equilibrium is reached.  i fear that place is a lot smaller than where we are now.  the people are going to get a little crazy as the process continues for the next decade or more.  the big shot big deal america gig is over.  now, just what are we prepare to do about ?

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