Confirming the Hindenburg Omen ~ The Risk Averse Alert

Monday, August 16, 2010

Confirming the Hindenburg Omen

I did not learn about this until today, but apparently something called "The Hindenburg Omen" was signaled last Thursday. Based on the internal characteristics of trading in NYSE-listed stocks, the omen apparently elevates the potential for a financial market crash.
"This is not to dismiss the indicator, but like all good technical analysis, the signals from one indicator should be verified using signals from another indicator that measures the same events in a different way," Guppy said.

Oh yeah, we have a whole lot of that going on around here now, don't we. Indeed, we do.

Elliott wave possibilities suggesting March '09 lows might soon be challenged, bolstered by a mid-term election cycle going back at least 25 years suggesting an intermediate-term low upcoming (probably before election day) and internals contrasting NYSE with NASDAQ revealing animal spirits AWOL offer such verification I believe.

Still, any prospective, upcoming gassing could be but a prelude of far worse yet to come over the next few years.

No doubt, March '09 lows likely will be defended, and this for as long as another white shoe firm does not threaten to fall. Yet fall another white shoe firm (or two) probably will, as a great leverage unwind invariably proceeds along a course predestined by the actions of pigs whose gluttonous feeding up until recently virtually guarantees their slaughter by the hand that fed them.

Surely, the lessons of 2008 bear this probability out.


Duly noted are present similarities to a major inflection point back in '08. One ever-so-slight difference now versus then, though, is seen in the configuration of momentum (MACD).

Back in late-May '08 when a similarly sharp break from a counter-trend rally peak unfolded momentum already had begun turning over a couple weeks earlier (i.e. in early-May 2008). In the present instance, however, there really was no similar warning.

Now, on one hand this slight difference stands to reason, given the different place we are right now within the context of an Elliott corrective wave begun in October 2007. We are further along in this corrective wave's formation, with the worst yet to come lying only all the nearer. So, last week's more sudden turn lower — relatively without warning — might be thought fitting the moment.

Nevertheless, should present technical similarities persist it appears a trip back up to the 200-day moving average is in order here. Whether such a move will satisfy my present outlook (anticipating wave c of an a-b-c zig-zag up from June 29th bottom) remains to be seen.

All told the Hindenburg remains intact. Yet you would have to be either naive or brain dead not to be aware of the highly charged air in which the ship presently is traveling. In light of this the cry, "Oh, the humanity!" very much still remains a purposeful misdirection's awful possibility.

Fast Money
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