Beware of Exploding Dirigibles!

hindenburg

hindenburg

 

A little over a week ago we learned how the "Taper" was going to crash the market.  Before that we had Cyprus, Sequestration, The Fiscal Cliff, and next week we may find out Mila Kunis went short the financials.  We've been told to sell since the March 2009 lows yet here we are just a few weeks removed from hitting new all time highs.  Buying the dip since the FED has gamed the market has worked in spite of these scare tactics.  But all that is meaningless right now.   Forget BTFD.  The FED?  They are powerless against the forces we are about to encounter.  This is something much bigger, something so explosive you may want to sell everything you own and put it under a mattress for five years..... Am I sounding like a financial network yet or shall I keep going?

Drum roll please.........

 

The Hindenburg Omen!

 

the omen

It's in the handbook of  every trader.  I have set my IPhone to chirp like a rabid rooster when the Hindenburg Omen reveals itself.  My dog Homeburg buries all his bones at the mere mention of this dastardly phrase.  We cover it 3 times a day  at Option Millionaires, and twice on Sunday.   Chuck Norris himself can not prevail against it.  If you aren't telling everyone you know about it now... ignore it at your own peril.

The Hindenburg Omen is a combination of technical factors that attempt to measure the health of the NYSE, and by extension, the stock market as a whole. The goal of the indicator is to signal increased probability of a stock market crash.

The rationale is that under "normal conditions" a substantial number of stocks may set either new annual highs or new annual lows, but not both at the same time. As a healthy market possesses a degree of uniformity, whether up or down, the simultaneous presence of many new highs and lows may signal trouble.

Theoretically, the Hindenburg Omen could be applied to any stock exchange. However, some minor alterations to the omen might be needed to achieve similar results.

Wait...it gets better.

 

According to Street Authority, here are some chilling statistics regarding the Hindenburg Omen. “The predictive accuracy of the Hindenburg Omen is impressive. Of the previous 25 confirmed signals, only two (8%) have not resulted in at least mild (2% to 5%) declines. Major crash: 27% probability. Selling panic of at least 10% to 15%: 39% probability. Sharp decline of at least 8% to 10%: 54% probability. Meaningful decline of at least 5% to 8%: 77% probability. Mild decline of at least 2% to 5%: 92% probability. Signal is an outright miss: 7.7% probability (1 out of 13 times)”

Are we gearing up for a market crash?  Is this just another excuse to shake traders out of their long positions?  Or maybe the shorts, with what little capital they have left, will take one last shot at trading for a pull back?

With earnings winding down the Hindenburg Omen should at a minimum provide some fodder for the talking heads on the financial networks, although I doubt any of them will tell you to sell everything and put it under a mattress for five years.

The market continues to amaze and astound as central banks around the world race to devalue their currencies and print fresh money into the system.  Equity markets keep chugging higher, ignoring any and all headwinds.  I think that is the true issue.  It is no longer a market.  When the price of something is manipulated, once the manipulator leaves, price discovery returns and that will be the day of reckoning.  Are we there yet?  What is it going to look like? I think we all know how it is going to end and  an exploding dirigible will be an apt description at that time.  But right now we have an Omen to deal with.

Profile photo of uranium-pinto-beansKnown to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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