'Hindenburg Omen' Meets 'Titanic Syndrome' For The First Time Since October 2007

Two weeks ago we warned that a cluster of the infamous Hindenburg Omens was forming. Since then stocks have suffered their biggest drop in 3 months...

However, the Hindenberg Omen is not exactly flawless and has false-alerted a number of times in the last few years.

Which is why, John Hussman has adapted the signals and is now warning of a very significant convergence of the 'Hindenberg Omen' and the 'Titanic Syndrome'...

I’ve noted over the years that substantial market declines are often preceded by a combination of internal dispersion, where the market simultaneously registers a relatively large number of new highs and new lows among individual stocks, and a leadership reversal, where the statistics shift from a majority of new highs to a majority of new lows within a small number of trading sessions.

– John P. Hussman, Ph.D., Market Internals Go Negative, July 30, 2007

Just a brief comment on market action.

On Tuesday November 14, the number of NYSE stocks setting new 52-week lows surged above the number of stocks setting new highs, with both figures representing more than 3% of total issues traded.

This “leadership reversal” joins the deterioration in our own measures of market internals last week, as well as ongoing dispersion in market breadth and participation.

As noted in the chart below, this couples a “Hindenburg” with a “Titanic,” and is actually the first time since July 2007 that we’ve seen this particular combination of internal deterioration. Each of the red bars below was also associated with unfavorable market internals on our own measures.

While the names of these indicators may seem silly and overly menacing, they actually get at something very serious.

They capture situations where the major indices are near new highs, yet market internals show much greater divergence. In my view, this type of market behavior is indicative of a subtle shift in the preferences of investors, away from speculation and toward risk-aversion. Coupled with the most extreme “overvalued, overbought, overbullish” syndromes on record, the behavior of market internals warrants close attention. Credit spreads are also worth monitoring, as junk bond yields have surged in recent days.

Importantly, we always have to allow for the possibility that market internals will recruit fresh strength. Our measures of internals reflect current, observable conditions, and suggest increasing investor risk-aversion, but this deterioration is not a “lock” on a negative outlook. We’ll take the evidence as it arrives, but today’s leadership reversal seems worth noting in the context of the other internal deterioration we’ve observed in recent days.

As a sidenote, if we expand the window for a leadership reversal to within 10 days of a 12-month high instead of 7 days, there would be one additional signal on the chart above, in October 2007.

That was also notable in the context of broader internal deterioration, including three “confirmed” Hindenburg signals on Peter Eliades’ criteria (which are more stringent than signals based on new highs and lows alone). Taken alone, I’ve often observed that signals like Hindenburgs and Titanics aren’t nearly as ominous as they sound. However, they are more informative when they are coupled with broader evidence of internal deterioration, particularly following extended periods of overvalued, overbought, overbullish market conditions.

As I noted in real-time, just after the what turned out, in hindsight, to be the 2007 peak:

Though I wouldn’t take the 3 consecutive signals last week as a compelling warning in themselves, I do think they deserve mention because they are occurring so close to unusually overvalued, overbought, overbullish conditions that independently warranted concern last week. With regard to our own measures relating to new highs and new lows, we observed a ‘leadership reversal’ last week – a sudden flip from new highs dominating to new lows dominating, with significant numbers of both, within a few days of a market peak. Those reversals are generally a signal that there is an underlying “turbulence” in market internals, which is a symptom of increasing skittishness by investors.

– John P. Hussman Ph.D., Forget the Lesson, Learn it Twice, October 22, 2007


zzzz88 Wed, 11/15/2017 - 13:15 Permalink

we all know this is everything bubble,but i would say it is also everywhere bubble.look at all the countries and regions around the world, bubbles are everywhere.so in the next downturn, it may be worse than great depression

Raffie Tao 4 the Show Wed, 11/15/2017 - 13:40 Permalink

I think the stock market will act like a sun going super nova.It starts to expand, then after it can not expand any more due to lack of energy it collapses suddenly and explodes into super nova. After the bright explosion, all that is left is a very small version of itself that is about the size of NYC.The markets will be a small shadow of their former selfs. 

In reply to by Tao 4 the Show

Raffie Tao 4 the Show Wed, 11/15/2017 - 14:00 Permalink

There will be 'something' left of the markets, but who is left is the big question.The markets stand to burn down to their socks.Reading around sounds like many are agreeing that the DOW could burn down to the 5k mark and maybe lower. At that time the powers that be will rebuild the markets and will take 12 to 18mo till it comes back online. THIS WILL BE A VERY BAD TIME FOR ALL OF US.

In reply to by Tao 4 the Show

Tao 4 the Show Raffie Wed, 11/15/2017 - 14:13 Permalink

After some years of trading and thinking about the markets, I realized that the level of the market is not per se so important. What maters are not even flows, but rather net flows. How much is going in and coming out of the market. As long as people think all is okay, all the Fed and PPT have to do is make sure outflows equal inflows. The actual value of the market matters very little.

If you are right that the market shuts down, a large portion of the economy (that is supported by outflows) will simply grind to as halt. That would be complete social disaster.

In reply to by Raffie

Richard640 zzzz88 Wed, 11/15/2017 - 13:58 Permalink

but...but...THE WOLF REALLY IS AT THE DOOR THIS TIME....honest injun-! The end is nigh, brother, the end is nigh! World markets are like a pie crust stretched across the roof of a volcano!Fu Manchu is about to pull the lever to the trap door!Warbucks signals the trusty  Punjab to cut the cords of the rope bridge!Grease the skids! Happy tobogganing!

In reply to by zzzz88

Bear Wed, 11/15/2017 - 13:20 Permalink

"the Hindenberg Omen is not exactly flawless and has false-alerted a number of times in the last few years"Yes, like about a hundred and never being right

Albertarocks Bear Wed, 11/15/2017 - 16:09 Permalink

For the record, each and every time the HO issued a signal and then the market just kept chugging higher, marked another case of blatant market manipulation initiated by the banking cabal when they threw billions of dollars into a handful of the very largest issues, like the FANG stocks.  This is what kept the markets from falling like economic Mother Nature was saying should be happening.Yes, there have been a lot of instances since 2009 when the HO alerted that the markets were extremely polarized and were on very thin ice.  And yes, the markets failed to crash.  And yes, each of those "failures to crash" were 100% due to banker intervention.Does this mean the HO is a faulty indicator?  Not at all... the thing is absolutely brilliant.  Thanks to Jim Meikka, the incredible blind man who developed it.  Instead, each of those failures earmarked just one more time when intervention kept the markets from pulling back.  The net result is that all that internal pressure still exists and will now just manifest itself in a crash that will surely be 2 or 3 times as huge as it would have been otherwise.  The shit is going to hit the fan.

In reply to by Bear

Albertarocks Bear Wed, 11/15/2017 - 19:51 Permalink

Goldman Sachs pretty much runs the FED.  The FED is complicit.  And the CFTC along with the SEC are just as dirty as the rest of them.  The SEC simply does not do it's job.  And that's because the SEC is also pretty much run by JPM and Goldman.Allesio Rastani made jaws drop on BBC back in 2011 when he said: "The governments don't rule the world.  Goldman Sachs rules the world."  Sure, that was when the markets were crashing back then, but we're facing pretty much an identical situation today as what he described.  I'll never forget how the interviewers were thrown into a moment of stunned silence when he said that.  The whole set just went quiet.https://www.youtube.com/watch?v=L9ucTmcPZQE

In reply to by Bear

Albertarocks Schmuck Raker Wed, 11/15/2017 - 16:19 Permalink

Agreed, those are very silly names for a couple of brilliant indicators... indicators that would normally be very accurate if not for banker intervention.  In fact, Jim Meikka, the developer of the Hindenburg Omen indicator later said that he was not happy with that name because it was overly sensationalistic.  In fact, if I'm not mistaken it may not even have been him who gave it that name, but his friend Kennedy Gammage.https://www.investopedia.com/articles/trading/07/hindenburgomen.aspEven though the names for those two indicators really do sound kind of stupid, trust me, based on what they are measuring, and because they just make so much sense, smart investors have absolutely no option but to take them seriously *every time*.  Because the bankers cannot keep this manipulation up in the face of such incredible pressure that these indicators are identifying.

In reply to by Schmuck Raker