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When Hindenburg Omens Are Ominous
Excerpted from John Hussman's Weekly Market Comment,
I’ve frequently noted that Hindenburg “Omens” in their commonly presented form (NYSE new highs and new lows both greater than 2.5% of issues traded) appear so frequently that they have very little practical use, especially when they occur as single instances. While a large number of simultaneous new highs and new lows is indicative of some amount of internal dispersion across individual stocks, this situation often occurs in markets that have been somewhat range-bound.
Still, when we think of market “internals,” the number of new highs and new lows can contribute useful information. To expand on the vocabulary we use to talk about internals, “leadership” typically refers to the number of stocks achieving new highs and new lows; “breadth” typically refers to the number of stocks advancing versus declining in a given day or week; and “participation” typically refers to the percentage of stocks that are advancing or declining in tandem with the major indices.
The original basis for the Hindenburg signal traces back to the “high-low logic index” that Norm Fosback created in the 1970’s. Jim Miekka introduced the Hindenburg as a daily rather than weekly measure, Kennedy Gammage gave it the ominous name, and Peter Eliades later added several criteria to reduce the noise of one-off signals, requiring additional confirmation that amounts to a requirement that more than one signal must emerge in the context of an advancing market with weakening breadth.
Those refinements substantially increase the usefulness of Hindenburg Omens, but they still emerge too frequently to identify decisive breakdowns in market internals. However, one could reasonably infer a very unfavorable signal about market internals if leadership, breadth, and participation were all uniformly negative at a point where the major indices were still holding up. Indeed, that’s exactly the situation in which a Hindenburg Omen becomes ominous. The chart below identifies the small handful of instances in the past two decades when this has been true.
While the measures of market internals that we use in practice are far more comprehensive, the evidence from leadership, breadth and participation above provides a fairly obvious signal of internal dispersion in the market. In our view, that dispersion is a strong indication that investors are shifting toward greater risk aversion. In an obscenely overvalued market with razor-thin risk premiums, a shift in the risk-preferences of investors has historically been the central feature that distinguishes a bubble from a collapse.
In my view, dismal market returns over the coming decade are baked in the cake as a result of extreme overvaluation at present. An improvement in market internals, however, would reduce the immediacy of our downside concerns. While a decision by the Federal Reserve to postpone the first interest rate hike might prompt a shift to more risk-seeking speculation, this outcome is not assured. The key indicator of risk-seeking would still be the behavior of market internals directly, not the words or behavior of the Fed. So we remain focused on market internals. In any event, waiting to normalize monetary policy may defer, but cannot avoid, a market collapse that is already baked in the cake. The Fed has only encouraged the completion of the current market cycle to begin from a more extreme peak. As we saw in 2000-2002 and again in 2007-2009, until and unless investors shift toward risk-seeking, as evidenced by the behavior of market internals, monetary easing may have little effect in slowing down a collapse.
Read Hussman's full letter here...
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Interesting...
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The only ominous thing is ZH lack of predicting market direction.
I will give them credit though for anti-direction.
So YIU have been balls long and made a shitload. Way to go. Good for you.
yeah...kinda like QE to the economy is like hydrogen to a blimp filled with people:
https://www.youtube.com/watch?v=zWKyYRJEcRo
Makes ya ask at that point....was that really very smart to do???
At least after the real Hindenburg moment the world never tried it again...
Traders are baked
Obama is praying the stock market will not topple on his watch. If there is a God and and if there is any justice in the world, it will crumble before he leaves office! He deserves it!
He couldn't care less. From here on out he is coasting.
Hah, you are assuming he does leave office. We have all died and gone to Bizarro World hell, he's going to be president FOREVER.
He hasn't accepted blame for anything else his administration has done, why start now?
He's black...it can't be his fault.
He is not all black, just the cool part that plays basketball. It's the white half that plays golf and screws things up....
he plays hoops like he's white. Its more uncoordinated then his policies
I'm pretty sure that he'll say any crash is still George Bush's fault.
God I hope so!
you are turning to god for hope now?
Water empires (those that have achieved complete control of their populations) always collapse from outside forces. It's hard to get more outside than God.
Market thoughts:
http://thetradingcrucible.blogspot.com/
One day or another all Ponzi schemes end. It is just a matter of time, but we are getting closer and closer.....
MOAR backtesting!
Hindenberg Omen??
Seems I've heard this before.
http://www.zerohedge.com/news/2013-08-13/hindenburg-omen-strikes-again-b...
http://www.zerohedge.com/news/2013-06-04/hindenburg-cluster-2nd-omen-3-days
http://www.zerohedge.com/news/2014-12-10/some-market-folks-are-turmoilin...
http://www.zerohedge.com/news/2015-08-09/when-hindenburg-omens-are-ominous
http://www.zerohedge.com/news/2014-12-09/markets-turmoiled-5th-hindenbur...
http://www.zerohedge.com/news/2013-12-06/hindenburg-omen-spotted
http://www.zerohedge.com/news/2013-08-05/lowest-volume-day-year-ends-hin...
http://www.zerohedge.com/article/hindenburg-omen-has-arrived
http://www.zerohedge.com/news/2015-06-11/bonds-soar-stocks-snore-after-g...
http://www.zerohedge.com/news/2015-03-16/dismal-data-drives-stock-buying...
http://www.zerohedge.com/news/2014-12-08/stocks-suffer-mini-flash-crash-...
http://www.zerohedge.com/news/2014-12-02/crude-carnage-resumes-stocks-bo...
Need I go on?
@Palladin
Go aead, you keep whistling past this graveyard of a "market."
Yeah the market's up shit creek, but a boat in a creek full of shit will still float until it smashes into the rocks.
Out of interest I read through the comments on one of the 2013 linked articles:
Divided States: "The previous time I made a trade based on the last Hinderberg Omen, the only thing that has crashed and burned since has been my investment account. Fuck this useless indicator."
:)
I wrote about the Hindenberg Omen on Seeking Alpha for 4 years before I finally threw in the towel. Why did I hang it up? Two main reasons
A) - 80% of the reported Hindenberg Omen signals never happened, yet were reported to have happened. Why were these "analysts" reporting HO events that had actually never occurred at all? Because they were using the original rules required to trigger a signal. Unbeknownst to them, Jim Meikka wisely adjusted the parameters (the rules are very strict) in order to account for the high number of ETFs and bond funds that were impacting the markets. Most of these instruments, especially the ETFs, were not in existence when the HO was invented. And they move the markets a lot. So the improvements that Mr. Meikka made did the job... they make it more difficult for an HO signal to be issued. The bottom line though, and this pissed me off to no end, was that all these "false reports" gave the HO a very undeserved bad name. These "analysts" were using rules that had been changed as long as 3 years prior to their "NEWS ALERT. NEWS ALERT".
B) - And the second reason I stopped wasting my time with it is this: The theory behind the HO is brilliant. No matter what readers think, to have all the factors line up at the same time that make the HO issue a signal... those are very rare occurrences. And when the HO does finally issue a legitimate signal, it exposes extreme stress in the markets. It is revealing an undeniable degree of polarity within the entire NYSE, the message being that "this market has absolutely no business rising like this. Why is it rising when 90% of stocks are falling?" [That isn't exactly what it's measuring, but I say that just to put things in the simplest of terms.] And yet, this is when the bankers came in time after time and just pumped the market higher and higher by simply goosing as few as 5 o6 6 major stocks, first one then the other. And they kept it up until enough of the falling stocks began to tick upwards again... averting disaster. Manipulation, plain and simple.
Imagine a wagon being pulled by a team of 24 horses. The road they travel is basically uphill. When the day arrives that 22 of those horses have been hitched to the back of the wagon and together they are pulling with all their might, in the downhill direction, leaving only two big horses left that are trying to pull the wagon up the hill... which way to you think that wagon is most likely to go? You're right, downhill. See, this is not a difficult concept to grasp. It is purely logical.
In essence, every time a legitimate HO signal has has been triggered, the bankers pumped enough juice into those two big horses to make sure the market did not drop one fucking iota. It was the rigging of the markets, the fact that it became a total farce that made me realize that as long as the Fed is in existence, technical analysis was basically no longer valid. Well... it will always be valid, but no longer trustworthy enough to place bets on. Fucking bankers. They should all be ...... to be continued in another rant some other day, some other place.
very nice presentation. tu
LOL, I remember this rerun.
Whatever, there is no spoon. Hasn't been for quite a while now.
Roll the Mother Fucking RUSTY weed whackers.\
Bitchez
I can't wait to see TSHTF when it all comes crumbling down. I think I may get cable again just so I can watch the CNBC idiots loose their minds. Popcorn anyone? I do have a question though, why am I so excited to see stawks drop like a lead weight? I am almost cheering for them to sell off.
I wonder how many bankers will jump from windows this time? DOW 6,000 baby!
This article is full of Hydrogen.
i'm more concerned with the hildebeast omen
This whole charade is back firing on both parties.
I MIGHT actually vote.
Don't do it! Think about your soul!
I voted for Jack and felt okay with it
http://www.dailyfork.com/Jack-Antenna-Ball.jpg
lol
Ponziconomy.
All there is to it.
How much does anyone need to think about it?
Fucking historic house of cards, absolutely historic generational mistake.
' The 'Super Volcano' erupts, then you check your air filters.
The older I get, the more girls like me. ;-D
Ebby, hands down, you're so articulate. You mince words beautifully.
Brought to you by The Dept of Redundancy Department.
Another Hussman piece. BTFD.
DOW 6000 by the year 2020.... The JAWS of DEATH PATTERN will soon commence.
https://www.youtube.com/watch?v=dROS30EOCIY&feature=youtu.be