The Hindenburg Omen Surfaces

Mike Turner |
Quote worth Quoting Again
"Patriotism means to stand by the country. It does not mean to stand by the president or any other public official, save exactly to the degree in which he himself stands by the country. It is patriotic to support him insofar as he efficiently serves the country. It is unpatriotic not to oppose him to the exact extent that by inefficiency or otherwise he fails in his duty to stand by the country. In either event, it is unpatriotic not to tell the truth, whether about the president or anyone else."...Theodore Roosevelt

Last week, as Sue and I finished up an extended R/R in Boise, ID. Despite my attempt at ignoring the outside world, I couldn't help myself from sneaking a peek at the financial news each day. Suddenly, the infamous "Hindenburg Omen" surfaced on Friday, which panicked enough of the Hindenburg Omen followers into selling into the close that it pushed the market down 276 points... this is a decent, but not overly significant, sell-off. I've searched all weekend and for the life of me, I can't find a single reason to blame the liberals or President Obama for the Hindenburg Omen, so those of you who can't abide my less-than-favorable political assertions regarding the current socialist party (aka, the Current Administration) in the great US of A, can breathe a sigh of relief... the sell-off this week was not, at least as far as I can tell, Obama's fault. I guess he has his hands full right now with not knowing what's going on at the DOJ, the IRS or the State Department (Benghazi); and, of course the photo-ops with Chris Christie...



Now... back to the Hindenburg Omen... According to Investopedia, the Hindenburg Omen is a technical indicator named after the famous crash of the German airship of the late 1930's. The Hindenburg omen was developed to predict the potential for a financial market crash. It is created by monitoring the number of securities that form new 52-week highs relative to the number of securities that form new 52-week lows - the number of securities must be abnormally large. This criteria is deemed to be met when both numbers are greater than 2.2% of the total number of issues that trade on the NYSE (3,165) for a specific day. When this occurs, as it did on Friday, traders assume it suggests that market participants are starting to become unsure of the market's future direction (obviously not enough of those traders subscribe to CycleProphet) and therefore could be due for a major correction. In Friday's trading, there were 156 new lows and 90 new highs. According to our time-cycle analysis, the S&P 500 could move lower by 5% in the next 90 days; the DJIA could move lower by 3%; the NASDAQ could drop 6%; and, the Russell 2000 could move lower by as much as 9%. Not exactly a crash-and-burn scenario. But, a closer look at these 4 index bellwethers, shows that all of them could eke out a small gain in that same time period. I'd feel a lot more Hindenburg Omen-ish if my time-cycle forecasts were all showing the move lower is likely and likely significant...but, they are not. I realize that my probability forecasts are going to be right about 67% of the time, so there is the possibility (low probability) that the market could, indeed, crash-and-burn. As such, I will be putting some short-biased (inverse ETFs) into my mix for trade considerations this week... not because of the Hindenburg Omen, but because several of my probability forecast trends of some market segments (Energy, Nat-Gas, US Dollar) 'could' move lower in the near-term.  

My Take... I believe the market is long overdue for some kind of 8% or so correction. Friday's sell-off could be the start of that correction, but I am not so sure. As long as the Fed continues to hold interest rates low (and despite the warnings to the contrary, I do not think the Fed can raise rates as long as the Federal government can't meet its interest payment obligations unless the rates are held at or near zero), it is doubtful that the market will slow down much. Could a correction occur at any time? Sure, but as long as the Fed continues to keep interest rates low, I would look at a correction as a buying opportunity. If, on the other hand, the Fed does, indeed, start tightening and interest rates do, indeed, begin to rise above 3% to 4%, I would expect the market to move into a significant and perhaps, extended decline. But... not this week. And, as you know, I am a long-term investor that trades one week at a time.  

  The Bull/Bear and Oscillator Reports...


    Each week, our computer programs compile the total number of equities in our database (over 6,000) that are issuing new "Alerts" for this coming week. The Alerts can be any one of the following:  

  • BUY - This means the status of the equity last week was "OUT" and this week, the weekending closing price moved high enough above my 10-week, time-shifted, moving average to trigger a "BUY". Click Here for this week's STRONG BUYS, or Click Here for this week's BUYS.
  • OUT - This means the equity stopped out by triggering a long-position stop-loss where the equity was sold, or it triggered a short-position stop-loss where the short position was covered.
  • SHORT - This means the status of the equity last week was "OUT" and this week, the weekending closing price moved low enough below my 10-week, time-shifted, moving average to trigger a "SELL SHORT". Click Here for this week's STRONG SELLS, or Click Here for this week's SELLS.

A running total of these new conditions (BUY, OUT, SHORT) is kept on a weekly and monthly basis. We have found that an analysis of these data provide a reasonably consistent view of short term (upcoming week) and longer-term (next few weeks) of the market, as follows:  

  1. First of all, the ratio of new Short Sell Signals (red line in the Turner CrossOver Oscillator, below) is an excellent indicator of overbought or oversold conditions. Oversold means the market will have a tendency to move from a downward trend to an upward trend.
  2. We have also found that the total number of Short Sell Signals compared to the total number of Buy Signals is a reasonably good indicator of investor sentiment. The more Short Sell Signals, the more bearish the sentiment. The more Buy Signals, the more bullish the sentiment. This investor sentiment analysis is generally more valid for the upcoming week.
  3. The Composite (black) line is produced by subtracting the total number of Buy Signals from the total number of Short Sell Signals. Charting this total over time and observing how the red line crosses the black line, often provides an excellent early warning of a market correction.

These data elements, along with charting the trend of the S&P 500 provide the basis for the brief forecast provided in these weekly Reports. It is important to understand that this analysis is based solely on a technical analysis and anecdotally-derived historical observations of these data. I write the weekly forecast based on my observation of the data and the Oscillator chart. Time-cycle data are NOT explicitly included in this analysis.    

The investor sentiment Bull-to-Bear ratio has pulled back for the second week in a row. The black line (Composite of Signals) no longer shows it crossing the red line (Short Sell Signals) from below. This does not often happen and is certainly not overly Bullish. The ratio this week is 1.1-to-1 favoring of the Bears. Keep in mind that the black line definitely has put in a bottom, which can be a very Bullish signal, but the pull-back from crossing the red line is worrisome with regard to a continuation of the current Bull trend. This could be similar to the pattern seen in July of 2011 (see Oscillator chart). The time-cycle trend probabilities for the broader market indexes are slightly Bearish for the upcoming first trend. Very short-term trades are in order with no more risk than what would be lost if stops are hit. The Oscillator is certainly, on its face, more Bullish with the black-line having bottomed in early May, but the pull-back from crossing the red-line is the big reason for a slight negative (Bearish) rating. The recommendation is to stay small and hedged. Selling premium, if an options trader, is not a bad plan.


Turner Bull/Bear Forecast For the Upcoming Week
Investor Sentiment Weekly Forecast
The Turner Bull/Bear Forecast™ provides a one-week directional forecast on the market, with [-5] being the most Bearish and a [+5] being the most Bullish. This is predicated on the ratio of number of new Buy Signals to the number of new Short Sell Signals for the previous week. The assumption is investors are becoming more Bullish the more lopsided the ratio becomes in favor of new Buy Signals; and, the converse is true; the more lopsided the ratio becomes in favor of new Short Sell Signals, the more Bearish investor sentiment.


Turner CrossOver Oscillator
The Turner CrossOver Oscillator™ provides an indication of the over-bought or over-sold condition of the market. The red line (New Short Sell Signals) shows a technical direction and strength (or lack thereof) of investors to push stock prices lower, triggering new Short Sell Signals. The higher the Short Sell Signals line, the more Bearish the market. The black line (Composite of both Short Sell and Long Buy Signals) is the combined impact of both the new Short Sell Signals and the new Buy Signals and is an indication of the degree of oversold or overbought condition of the market. Buying opportunities exist when the Composite of Signals line is moving higher. The higher this line moves, the more Bullish the market. Market bottoms are represented by a change in direction of the Composite of Signals line from moving lower to moving higher. Market corrections become much more likely when the Composite of Signals line crosses the Short Sell Signals line from below the Short Sell Signals line to above the Short Sell Signals line. The market is represented by the green shaded area.


  Closing Thoughts...

Thank you for giving Sue and me a little time off. Hopefully, you didn't even notice or care that I was bike riding and fly fishing in Idaho for the past couple of weeks. The time off was glorious. I am rejuvenated and anxious to get back into the trading saddle. Plus, we have a lot of work that we have been putting off for quite some time with regard to our website and now is a good time to tackle some issues that have been on my mind. To begin with, I want to implement a "Live Chat" function on the site. This is not a "Trading Advice Live Chat", so please don't plan on using it that way. We are not permitted to give you specific trading advice. The purpose of the Live Chat is to answer any 'How-To' question you may have regarding the use of the website. We hope to have Live Chat operational within the next month or two, depending on how well we work through the priorities. I also plan to have a training video on every page of the website where we give you our 'Best Practices' point of view in using that particular page. I think this will help new subscribers a lot. And, I hope to have a very robust (yes, searchable) FAQ on the site very soon. My plan is to make the website and our tools as user-friendly and intuitive as possible. I want you to be able to maximize your usage of our services in the shortest amount of time possible. Along this line, if you have any suggestions on how we can improve our website and make it more useable to you, please send your suggestions We will do our best to incorporate your ideas and suggestions into the website and tools as soon as possible. Lastly, we sent out a survey to you this past weekend. The Las Vegas meeting of CycleProphet and Sabinal customers and clients was extremely successful. This is something that I hope we can do at least once a year. Please respond to the survey even if you did not attend this year's meeting in Vegas. I would like to hear from you on what we can do to help you become a better investor/trader.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
PSX Phillips 66 80.59 0.24 0.30 1,490,343


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