Hindenburg Omen Issues First Signal Since Aug. 2010

UPDATED APRIL 18, 2013:  Well, that was another fairly close call today.  According to the official data source, the WSJ, there were 68 new highs and 59 new lows issued today (85 of each are required).  And just as a check on WSJ's often-faulty work, StockCharts shows 83 new highs and 58 new lows.  So with the added comfort from StockCharts that the WSJ isn't too much out of line today we can safely say that we just had another "near miss", the third in as many days since the 'initial' signal on Monday.  And this one was closer than those that occurred on Tuesday and Wed.

A very important factor is that if the market drops even one point tomorrow the HO is going to be switched off because of the rule regarding the 50 day MA.  And of course it's no surprise that the 50 day moving average of 'any' market will roll over at a market top.  So the HO actually has a very small window of opportunity within which to issues signals.  It's entirely possible we will 'never' see a second and confirming signal which is why I personally have never depended upon seeing it.  We know darned well that the NYSE is very polarized and shakey.  For me... that's all I need enough to know.

UPDATED APRIL 17, 2013:  Just for the record... as you know the HO issued its "initial" signal on Monday.  Yesterday and today it came relatively close but did not fire the second round.  The missing piece of the puzzle on both days was that there weren't quite enough new 52 week highs to trigger.  85 were required.  According to the WSJ there were 60.  According to StockCharts there were 80.  In either case... not quite enough.  In both cases... too close for comfort.

=================  Original Article Below  ================

 Today the Hindenburg Omen has issued a signal, it's first since August of 2010.  But's with a cursed asterisk courtesy of the WSJ.  I'm going out on a limb (but not by much) by making this declaration because according to the official source of the data, the WSJ, only 84 new 52 week lows were attained today while 87 were required.  The minimum required number of 87 new highs was attained.  We've seen enough of this my friends.  At least a half dozen times in recent years we have seen the data from the WSJ get "pinned" just shy of requirements for the HO to go off.  Each time that happened a sharp market sell-off ensued in the days and weeks following.  There comes a time when we have to recognize that just as in the game of "hand grenades", sometimes close is close enough. 

I also think we're at that point when a person just has to step up to the plate and say "Ok, enough of this bad habit of reporting shit false data".  Or call it "incomplete market data" or whatever you want.  According to StockCharts there were 132 new lows registered today and that's such a giant disparity that we can be pretty damned confident that the WSJ is being disingenuous today.  It's not the first time either.  Just telling it like it is folks.
  
Previous Erroneous Calls Understandable

Contrary to claims by some very well known and respected analysts, people I myself respect a great deal including Dr. Robert McHugh, Sentimentrader and Stockcharts' contributing author, Mr. Arthur Hill (along with a few others), the Hindenburg Omen has not issued any signals in recent weeks or months... not once since August of 2010.  It did not issue any signals in December as claimed back then.  The signal issued today is official, because believe it or not it's important to use the correct rules for crying out loud.  Why so many analysts insist on using the old rules and still screw up half the time even with those ones is something I can't quite understand.  That practice is a great example of the truth in the old saying "A little knowledge is a dangerous thing". Having said that, I do want to make it clear that I have a ton of respect for the names above even though they are either using old rules or, as in the case of Mr. Hill, they are simply misinterpreting one very strict rule... and that being the rule regarding the 50 day moving average on the NYSE.  In fact, to his credit, Arthur Hill upon learning that he'd 'misread' the rule regarding the 50 day moving average, corrected his article so that it stated the Hindenburg Omen "almost" went off.  It became clear at that point that Mr. Hill had simply misread or misinterpreted that particular rule and made the necessary adjustment.  That's what good analysts do.

I also want to make it very clear, I consider the sources mentioned above to be very credible... it's just that with the recent declarations of a UFHO sighting they've just made an innocent error.  A couple of years ago when the inventor of the HO, Mr. Jim Meikka, made a few fairly important and very reasonable rule changes in order to account for the increased numbers of ETFs and bond funds, those changes were not broadcast widely.  So it's understandable that some analysts are unaware of them.  I only discovered them myself by keeping close tabs on what Tom McClellan has to say each week (more on that below).

The 'Official' Rules

I am using all the rules as dictated by Mr. Meikka, including the changes referred to in the above paragraph.  And of course, in order to maintain consistency we still use data obtained from the one and only official source, the WSJ.  Due to the fact that there were so many erroneous claims of an HO signal recently, I found it necessary to confirm that it wasn't 'me' who was behind the 8-ball in that perhaps there had been a change that I was unaware of.  I couldn't imagine why any further recent changes would have been necessary and I highly doubted Mr. Meikka had initiated any.  Nonetheless, in order to make certain, I had a recent telephone conversation with Tom McClellan of McClellan Financial Publications, in which Mr. McClellan was kind enough to reaffirm that my understanding of the all the rules regarding the Hindenburg Omen are correct.  And Mr. McClellan would know... it's his father's own indicator (NYMO) that forms a large component of the HO's inner workings.  As well, Tom McClellan is a friend of Jim Meikka and as such he would be aware of any recent changes in the rules.  There have been none.  I might add that not only was Tom McClellan very helpful, he's flat out a fun guy to talk with.  Now that that topic is finally put to bed, we continue to the meat of the matter for today.

- 50 day moving average for the NYSE must be rising  ✔
- number of new 52 week lows must be at least 2.8% of issues that traded and changed in value  ✔
- new 52 week highs must also be at least 2.8% of issues that traded and changed in value  ✔
- that data must be obtained from the WSJ  ✔ *
- new highs cannot be more than double the number of new lows  ✔
- McClellan Oscillator (NYMO) must be negative on the day  ✔
- [and my own personal unofficial requirement; that when the HO issues any signal 90% of investors must laugh it off as they always do, as a reflection of their utter complacency.  This requirement is always fulfilled because during times of market exhilaration, at a time when the market internals are in tatters, investors pay no attention to signals that really, really matter.  The Hindenburg Omen is one such signal.  ✔




Today's Signal Might be Ignored

Pertaining to that last rule, what's even more likely is that with so many false alarms having been issued by those who seem to have the extreme craving to "be the first to report it", the main stream media probably won't even mention today's HO signal.  That's a sad situation because in its own right an HO signal at this ungodly stage of an incredible madness induced market rally could almost be seen as an historic event.  We'll see!  As well, the general sentiment is so diabolically complacent thanks to the madness of bankers and the resulting euphoria that madness creates among the uninformed masses, that any mention of any type of signal that indicates the market just might be in the earliest stages of a crash simply will not be tolerated.  Ignorance is bliss as they say.

So that's it... all requirements for a signal were met only moments ago.  So the HO went off today and I imagine so will half the bears out there in Stockworld.  But before they do, it's very important to have a clear understanding about what this all means....

SO WHAT DOES IT MEAN WHEN THE HO ISSUES A SIGNAL?

If you haven't done so, I highly recommend you read So The HO Issues A Signal. What Happens Next?  In fact I've been recommending for a year and a half now that investors should read that piece before the HO issues a signal just so that you know ahead of time exactly what to expect.  If you haven't read it yet no worries, just read it now so you know what the odds are of various outcomes in the weeks ahead.  In a nutshell, despite the ominous name, an HO signal does not necessarily mean "Ok ladies and gentlemen, I advise that you now begin to panic."  Nor does it necessarily imply that a life changing, market crashing, 'death to many businesses' event is about to happen, but just that the odds are only 27% that such an event is about to occur.  But let's not fool ourselves, with a global credit crisis 100 times worse than any ever before seen in the history of the solar system we should consider a signal from the HO as most likely being fairly serious this time around.  As in... "the odds of an iron meteor the size of New Jersey slamming into our planet are only 27%".  Only 27 percent!  Things could be worse!

Some Decline is Very Likely

But in the name of calm, we also need to recognize that if past history of HO signals (and what occurred after them) is an accurate guide for what would happen this time around, the greater odds suggest a somewhat milder correction than what most people might envision.  Keep in mind that the HO is not designed to tell us what size that correction might be.  All it has done is to alert us to the fact that a relatively rare extreme condition has been reached in the markets that reveals an unusually high degree of polarity.  It reveals that there are relatively few healthy horses pulling the stock markets uphill these days.  And while they struggle to keep the market afloat, there are now plenty of horses pulling the old stock wagon downhill at the same time, and even as the 50 day moving average of the NYSE is heading higher.


Virtually No Upside Potential Exists

Bottom line?  The odds of  further upside are almost non-existent when so many of the animals in the stock yard are pulling in opposite directions. Animals like that superstud of a corporation Amazon, with a P/E ratio of 28000:1, recapturing all of it's 10% slaughter after the earnings report about a year ago and then tacking on another 4% the next day... as compared to that AAPL with a measly $100 billion in the bank, falling more than 39% since its Sept. high.  See what I'm talking about?  That's the kind of polarity the HO detects market-wide. The odds are 93% that something is going to break at least a little bit.  There is a 54% chance that it will be a decline of at least 8-10% (the entire data list is posted below).

The Signal is Only Halfway Complete

Keep in mind today's signal is only the first of two required, one which Mr. Meikka calls the "initial signal".  However, it's critically important to understand that a market correction doesn't need that second signal in order to decline.  Today's action is clear enough evidence of that truth.  However, in order for the HO alarm to go off "officially", a second signal must be issued within 36 days.  That second signal usually occurs within a much shorter period than that however.  It could happen tomorrow,  next week or the week after that.  Nonetheless, although the signal is not considered "official" until that second occurrence, let's be realistic.  We as investors have now been given ample evidence of the high degree of stress within the market.  And by "high degree", the fact that the HO issues signals fairly rarely is evidence enough that any HO signal is an outlier.  This is one more reason why it's so darned important to weed out the false claims of an HO event.  The legitimate ones just don't happen that often.  So even though today's signal is just the first, I sure as heck would not remain long or consider buying the dip at this point regardless of whether or not we see a second signal.  In fact it would be idiotic to wait for a second signal before we finally recognize and accept what is actually happening inside the guts of market.

From the piece I mentioned above about "what happens next", here's a brief summary showing the odds of what will happen based on the entire history behind the HO since 1985:  These are not guesses.  These are hard facts based what happened previously based on two and a half decades of pure Hindenburg Omen history:

Major Crash - 27% probability
Selling panic of at least 10-15% - 39% probability
Sharp decline of at least 8-10% - 54% probability
Meaningful decline of at least 5-8% - 77% probability
Mild decline of at least 2-5% - 92% probability
The HO signal is an outright miss - 7.7% probability (one out of 13 times)


Wishing all of you the best.  Stay safe.

LIVIN' IT

SUNSETS

.

Degree of Complacency At An All-time High

With special thanks to contributor Drew, it has come to our attention that the $SPX:$VIX ratio is now at an all-time high.  I had written articles previously about the S&P 500 as if it were priced in units of the $VIX but in all honesty I had recently taken my eye off that ball.  So I really appreciate the good fortune to have stumbled upon Drew's comment this morning and for paying attention to what he had to say. 

The previous peak in this particular ratio had occurred in January 2007 when the ratio topped out at 138.35.  Of course at the time we had no way of knowing whether or not the investing community was going to become even more complacent or whether that was the actual apogee of that ridiculous curve.  As it turns out it was the peak, and nine months later the equities markets began their epic crash into the lows of March 2009.  Today, complacency has reached a new level.  Never before have investors been so convinced that a market pullback is all but impossible.

But the most striking aspect of today's new high in this measure is the stunning speed with which it has attained the current level.  Just take a look at that spike!  As the weekly chart reveals (not shown) in just the past 21 calendar days this ratio has shot up from 97.08 to 138.37.  It could be argued that what this phenomenon is actually saying is that the degree of complacency as measured by the $VIX has exploded by 42.5% in the past three weeks.  Never before has the ratio been even remotely close to this extreme as seen by applying Bollinger bands.  In this case, I have opted to honor the 30,2 Bollinger configuration out of respect for contributor Drew who had used those settings when he brought this event to our attention on FireAngelMaverick's exciting new blog.  In the chart below we look at the monthly chart from 30,000 feet in order to grasp the enormity of this extreme:

Caption edited since initial publication: Click here for larger updating version.  The ratio has adjusted almost immediately, mostly from an explosion higher in $VIX

But in order to really appreciate the extent to which this latest market melt-up has been achieved with near-total conviction that a pullback is all but impossible, we have to drill way down close to examine the ratio as it relates to its own Bollinger bands.  Words can barely describe the extent of this aberration.  Let the chart speak for itself:

Caption edited since initial publication: Click here for larger updating version.  The ratio has adjusted almost immediately, mostly from an explosion higher in $VIX.

And finally, I'd like to add one more touch here.  In the chart below I've set the standard deviation setting to on the Bollinger bands to the point where the $SPX is just touching the upper band.  Amazingly, the $SPX:$VIX ratio on a monthly basis currently resides 2.94 standard deviations above the 30 month moving average.

Right click chart for option to open in a new tab for a larger view.

Just so that we appreciate how extreme this degree of complacency is, it behooves us to recognize that in the standard normal distribution Bell Curve, 99.7% of events will fall below 3 standard deviations.  The ratio is currently at 2.94 standard deviations.

There's not much else to say.  The pictures speak for themselves and the only thing we know with 100% certainty is that the snap-back to reality will be violent.  We do not know when that will happen but if you are long this market it might be a good idea to take a little off the table PDQ.  Doncha think?

Be careful out there and until next time... stay safe.

.............

AAPL:$NDX Ratio Comes Completely Unglued On New Year's Eve

Nearly a year ago we took a fairly close look at the AAPL:$NDX ratio in which we demonstrated that any time we saw that ratio falling, the NASDAQ 100 simply had to follow suit.  And vice versa.  And of course that made perfectly good sense since AAPL represented an incredibly large chunk of the $NDX.  With one single corporation representing approximately 20% of an entire index rising or falling, it logically follows that the entire index must do the same.  How could it not?  The entire point of following a ratio of this type is to try to use it to our advantage in spotting a likely turning point for the larger index.  And ever since that short article was written, the $NDX has indeed followed the ratio loyally.  Incredibly, that metric came to a screeching halt on Jan. 1 of this year.
[The previous study of last April can be found here]

Since the first trading session following New Year's Eve, AAPL, a corporation that is larger than the economy of Switzerland, has just continued its downslide which started in Sept. and has fallen a further 21% in the past two months alone.  In total, AAPL has declined 38.4% off its high that was registered on Sept. 21.  That my friends is a crash of mega proportions by any standard.  But when a meltdown like that occurs in the single largest corporation not only in the NAS 100 group, but in the entire solar system, one has to really sit up and truly try to understand the sheer enormity of an event like that.  Imagine if the headlines read "Economy of Switzerland Declines 38.4% In Second Half".  [The decline in AAPL is nearing its 6 month anniversary.]

Click here for a live and updating version

So now we're faced with a real dilemma.  First of all,  let's try to ascertain why the ratio has totally broken down as an indicator.  When did the breakdown occur?  Well, as clearly evident on the chart above, on the first trading day of this calendar year something happened that completely shattered the myth that "leaders lead".  How in hell is this possible?  What happened on that day?  Well for one thing, that was the first trading day that followed the eve of the Congressional Comedy Show, the night when the world held it's collective breath as a human form of "leaders who don't lead" did little other than to bathe in the global limelight and the sheer glory of their own presence... and then did nothing.  For those of you who have already forgotten what a silly and unnecessary piece of low quality drama that was, here's how the Guardian recorded it.

What followed on the next trading day was a rocket shot in equities markets heard around the world.  Does anybody know why that happened by the way?  To me it would have made more sense if global markets had tanked when the non-leaders of the largest economy in the world made the deliberate decision to bankrupt the nation.  And here we are now, just two short months later and that decision has effectively been reversed.  Spending will be cut.  Not enough, but it's a start.  So the most obvious question then should be "Is the fact that "the deflationary budget cuts are going into effect" going to fix what is wrong with the AAPL:$NDX ratio?"  After all, sequestration is the direct opposite of the event that was used as the excuse to launch the markets on Jan. 2.  I don't know the answer to that question, but the logical conclusion would seem to be "yes, the correlation between AAPL and the NDX should once again become direct and nearly instantaneous as it had always been prior to the contrived equities launch of Jan. 2."  That's not to say it will necessarily happen though since the global banking cabal seems to have patented the rights to logic and banned its use until further notice.  A page right out of Monsanto's handbook.  Nonetheless, we do our best to work through the smoke and mirrors.

A Short Exercise To Examine the Enormity Of This Aberration

So why did the ratio break down?  What would be required for it to break down?  In order to try to get a grasp on what effect AAPL's recent performance has had on the $NDX, I turned to a little calculator I devised on Excel a couple of years ago that can provide those answers reasonably accurately.  I say "reasonably" because we're never certain what weighting to give AAPL as a percentage of the entire NASDAQ 100.  The last figure I read said that AAPL comprised 19.8% of the entire $NDX, and of course as the value of AAPL drops, so does its weighting.  So for the sake of this discussion I used 16% since AAPL has declined considerably in recent months.

The results show that had AAPL behaved just since the first trading day of this year exactly the same as the other 99 companies in the $NDX had done, the $NDX would have closed on Friday at approximately 2855 instead of 2747.75.  Let's round that off to 107 points difference.

This incredible dichotomy can legitimately be viewed through different prisms.  On the one hand it is clear that the decline in AAPL has held the $NDX back since the first of the year by 107 points or approximately 3.9%.  On the other hand, the question should be asked "Well, how much did it take to keep the other 99 stocks in the $NDX from falling at all during the first two months of this year?".  Because let's keep it real here, when the largest corporation in an index of only 100 issues representing 16% of that entire index falls 21% in two months, the entire index has to be effected to the downside... unless there is a deliberate and considerable cash injection into the other 99 issues designed to offset it.  Clearly that has to be what has happened because the entire $NDX, including AAPL, has not budged... it is dead flat since Jan.2.  Talk about going to extremes to make sure we don't upset the AAPL cart!  Perhaps all the money that fled AAPL since Jan. 2 found its way into the other 99 stocks?  Who knows?  How much money is that anyway?  I don't know how many shares of AAPL are outstanding but it wouldn't be difficult to put a figure on it.  But for the sake of this exercise the actual figure is almost a moot point.  Whether the extra funding for the remaining 99 'little stragglers' in the NDX came from the sales of AAPL shares or came from under Jamie "that's why I'm richer than you" Dimon's mattress is also a moot point.  The simple fact is that when AAPL tanked the NDX was propped up, end of story.  So we try to work through the noise and...


...continue toward getting some answers.

So what's next?  Is the decline in AAPL complete or near completion?  I do not believe it is.  If not, what does that mean for the overall $NDX going forward?  And perhaps most importantly, what would be the result when AAPL does find a bottom and comes roaring back with a vengeance... even if it were only a snapback corrective rally in a larger cyclical or even secular downtrend for AAPL?  The recent record suggests that if AAPL finds a bottom before the $NDX decides to play catch-up, the rally that would be ignited in the NAS would likely be spectacular.  Would it rise as much as AAPL will?  Absolutely not!  Would it rise at least to a certain degree along with AAPL?  Definitely!  Will those events finally turn the AAPL:$NDX ratio higher thereby granting the green light for new highs?  Yes, the ratio would obviously turn higher but it would almost assuredly just be a bounce. For our immediate trading needs though, we don't have to have the answer to that last question just yet.  But sure as the sun will rise tomorrow, at some point we will!  So we'll be keeping our eyes open for these signals because sure as shootin' they're coming, although it seems they're perhaps three or four weeks away.

Let's dismantle the ratio for a moment and take a look at each factor separately.  First AAPL. A quick glance at the weekly chart below shows just how serious this decline in AAPL really is, especially in light of the fact that the major trend line dating back to the 2009 lows has been emphatically breached.  This of course is not to imply that an impressive bounce won't happen, I'm sure it will.  But that bounce does not appear to be on the immediate horizon:

AAPL Weekly - Click here for a live and updating version which includes several indicators and a few annotations

Next we zoom in on a daily chart for AAPL to see if we can garner any clues about the potential for a near term bottom:

AAPL Daily - Click here for a live and updating version which includes several indicators and a few annotations

I think there are two keys to the daily chart of AAPL.  Firstly, the pattern that has emerged since day one of this year has evolved as a series of 3-wave sequences (white).  Those are the hallmarks of a diagonal.  Usually there is overlap between wave 1 and wave 4 in a diagonal but the AAPL case is a bit of an anomaly I think, because although all the white waves are 3s (including the two down-legs), there is no overlap.  Nonetheless it is an impulse that certainly seems to need a 5th leg lower.  Again, as seen on the weekly chart for AAPL, the daily also shows the area of 355 as being a reasonable target.   A second and important key to the AAPL's daily chart is that none of the indicators are supporting the idea of higher prices at this point.  So let's go with a price target for AAPL of $355 before we're likely to see any reasonable bottom.

And finally we'll investigate what the future might hold for the $NDX itself.  Without even bothering you with a weekly chart, I'll just summarize the situation with a comment that all you bright readers are already aware of... the $NDX along with all the other majors are way overbought on a weekly bases complete with negative divergences on all fronts and they are due for a pullback.  As well, the sharp leg down off the September top in the $NDX was an impulse while the current up-leg, at least at this stage, seems to be a clear corrective.  In a normal world there would be little argument (not even from the most staunch bulls) that another down leg is now most likely.  We should be seeing either a 'C' leg lower or a wave 3 at any time now. 

So we dial in on the daily chart of the $NDX and cover the exact same time span that we investigated for AAPL a little earlier:

$NDX  Daily - Click here for a live and updating version which includes several indicators and a few annotations

In his highly referenced library of chart patterns, Thomas Bulkowski describes the "Reverse Symmetrical Triangle" here.  One of the requirements for a proper triangle of this nature is that it be made up of 5 legs, each one of them itself being a 3-wave sequence.  On the chart of $NDX it is difficult to discern those five 3-wavers.  But if you recall from the daily APPL chart, in that exact same time space APPL does indeed display what looks to be four of the five required 3-wavers.  This fact makes it even easier to accept that what we are looking at in the $NDX is indeed a legitimate bearish broadening triangle.

Mr. Bulkowski also goes on to note that this pattern is not very good at providing guidance about which way it will break out.  But Dr. Robert McHugh is quite vocal about these patterns being very bearish.  I fully concur with Dr. McHugh in this regard for the following reason; psychologically speaking, I interpret the ever-widening swings as betraying ever-increasing skittishness, indecision and fear as time moves forward.  This is the exact opposite psychology present in a regular symmetrical triangle where price moves toward the triangle's apex to the right.  In other words, in a regular symmetrical triangle, investors are becoming less and less fearful as time progresses.  The individual movements up and down decrease in size as each day ticks by and fear dwindles.  It's no mystery that it's during these very types of patterns that the $VIX drops to levels that just scream "Complacency!"  So it seems perfectly logical that that's why symmetrical triangles almost always break out in the same direction that price was headed when it entered that triangle, especially when the larger trend is to the upside.  They even display that behavior to the downside in cases when the overall sentiment was bearish as price entered the triangle.  As time progresses in a regular symmetrical triangle those bears become increasingly comfortable that they had made the right decision.  And in decades past, before the banking slobs were permitted to come swooping and mess with normal market forces on an hourly basis, the dependability of the symmetrical triangle in a bear cycle was just as reliable as it was in the bullish phases.  So almost by default, I'm quite convinced that the broadening triangle displays behavior diametrically opposed to the psychology of comfort and calm found in a regular symmetrical triangle.  Broadening symmetrical triangles are bearish.

To sum it up then, I think the huge disparity between AAPL and the $NDX, as revealed by the ratio between the two, is about to be resolved.  I'll stick my neck out here and call for a rather harsh pullback over the next 3 or 4 weeks in all the major indices, with AAPL continuing to fall considerably harder than the $NDX does during that period.  And the ratio continues to drop.  I do so because I still believe in technical analysis, especially when it offers clues about overall market psychology on a scale as broad as this.  And right or wrong, I simply interpret the market action since Jan. 2 as having been corrective and illusory.  I believe that will be proven correct as the ratio has revealed a rare market extreme that simply cannot persist. 

Wishing readers all the best... and stay safe!

Reviewing 11 Global Markets Since 2009

I find it helpful every once in a while to review how the major global markets have performed over any particular time span relative to each other.  In the charts below we take a look at 11 large markets going back to the March 2009 lows, using the S&P 500 as the benchmark.  The Russell 2000 is included for two reasons.  The first simply being the humorous side of that particular market since it represents the "riskier" assets and is therefore literally a plaything for those who have the ability to goose or influence markets at will.  All cynicism aside, the performance of the Russell over the past 4 years is actually very typical of a market in which the appetite for risk is relatively high.  And of course in a realm where the central banks of the world are more than happy to accommodate their minion manipulators with free liquidity, it is perfectly understandable that the small caps would have risen more than any other since the collapse of Lehman.  It's aggravating as hell to be sure but in truth it is nothing unusual.  I have to keep reminding myself of that fact.

The second reason the R2K is included is for that very same dynamic... sans the cynicism.  Because from a strictly analytical and logical standpoint there's no secret that the Russell leads in both directions since it reflects the appetite for risk.  And of course that's just standard procedure.  So it behooves us to keep tabs on the Russell since there is absolutely no doubt that if and when the markets ever begin to suffer the consequences of a withdrawal of liquidity, that particular index will lead to the downside.   In a bear cycle The Russell should drop first and it 'will' drop the hardest (of the North American markets).  That particular topic...the analysis of the relationship between the larger caps and the small caps... is an important enough metric on its own merit that it deserves to be the focus of a study all by itself.  Although that won't happen in this post, I have been meaning to really dive into that one and hope to get to it very soon.  Just haven't gotten around to it as of yet.

That aside, we move forward with what I find to be a very interesting look at what has occurred over the past four years with 2 US markets and 9 European bourses.  Due to limitations imposed by StockCharts we can only investigate 6 different indices on any single chart.  But we get around that issue simply enough by presenting two charts.  On both of them I have included the S&P 500 as the benchmark which most of us know like the back of our hands.  As well, we'll present the Austrian market (in white) on both charts just for convenient reference since it happens to fall in the middle of the pack.  So we begin... first with the S&P 500 and the other 5 markets within the USA and Europe that have risen the most since March, 2009:

The actual percentages of change can be seen in the upper left hand corner.  Right click the chart to open in a larger version (new tab)

What is perhaps most interesting is that the Paris market ($CAC) is not even in the top three for Europe.  We don't even see it in the chart above.  That is not to suggest that France is really any worse off than any of the other European markets, but it is a bit alarming to realize that for an equities market representing an economy of that size and importance, the CAC's performance has been pretty darned anemic.  In fact it is only sitting with a net gain since the Lehman lows that place it uncomfortably between the markets of Austria and Spain.  And the IBEX of Spain is currently sitting with a net gain since March 2009 of exactly zero.   That's the 'good' news.

Portugal

The markets of Portugal, Italy and Greece are all underwater compared to 4 years ago and it would appear that if there is any inkling of a deflationary phase on the horizon, France is likely next.  Yikes!  That's scary because the French and Italian economies are not little punks by any stretch of the imagination.  Those are huge participants in the larger European theater although they might be a bit better off if they were to, well... get to work a bit more often.  Who knows, with a little honest effort they could perhaps produce something innovative and stunning like the Germans have been known to do.

So using the Austrian market (in white) on both charts as a handy reference, we move to the next graphic and take a look at the 5 lagging markets whose performance has been lesser than that of Austria.  You'll only see 4 lines on the chart below the $ATX, but in the interest of clarity I left out the Italian market since it is at exactly the same level as the PTDOW (Portugal).  For all intents and purposes if you prefer you can just read the letters P-o-r-t-u-g-a-l as spelling "Italy".  But they don't really.  They spell Portugal  :-)  How beautiful is that landscape?

Right click chart for the option to open it in a new tab and see a much larger version.

And finally just a few general thoughts on the images above.  Although I find it to be absolutely infuriating to see the Russell 2000 sitting at 210% of its value at the 2009 low, I fully understand and accept that this type of performance is actually perfectly normal in a world where liquidity is ample and banks are pigs... whether that liquidity be temporary and artificial or not.  It's just that the banking monsters use that market as a tool for their criminal advantage and at the horrible and crushing expense of all pensioners worldwide, some of whom are 'your' closest friends.

Ravello, Italy

As for what might seem to have been my 'taking a jab at' southern Europeans for being a bit on the lazy side, let me expound on why I can understand that they have that attitude... to a certain extent.  The latitudes that provide some of the very nicest climates anywhere in the world just happen to reside somewhere between the southern Canadian border (49°) and about 35° N.  And naturally, my homeland doesn't fit into that zone.  But lo and behold, in the western hemisphere the United States and the Caribbean fit the bill beautifully.  But I don't particularly want to live in the United States these days although I certainly could have enjoyed that at one time.  So one day recently, while in a dreamy mood filled with wanderlust and visions of beautiful women, I drew lines all the around the world on Google Earth at those lucious latitudes to see which other countries resided between the lines.  And sure as shootin', the entire southern part of Europe is smack in the middle of it, Spain, Portugal, France, Italy, Corsica, Sardinia, Cyprus.  And of course Greece.  Those poor folks simply had the seriously inconvenient misfortune of having been born in some of the most outstanding, relaxing, beautiful, laziness-inducing scenic climates in the entire solar system.  From that perspective I envy those people more than I can express in words.

But one thing I learned in 6th grade that I've never forgotten was Ellsworth Huntington's Theory of environmental determinism.  Today more than ever I am 100% convinced that his thesis represents a huge key to understanding the mindset we see throughout all of southern Europe.  I don't blame those people for expressing the attitude they do nor for living the lifestyle they do.  It's oh so understandable.  In a nutshell, what Mr. Huntington's theory proposes is that the colder the climate is that people are living in, the harder working those people are.  The reasons are pretty darned basic as well; first, without gorgeous warm beaches crawling with beautiful people there's not a hell of a lot else except to find something useful to do, and secondly, it's basically a matter of survival.  It really boils down to the fact that in cold climates hard work is literally 'essential' in order to just keep from freezing to death.  As a long time resident of the Great White North I can testify to the veracity of that argument.  It's even worse during winter.

Those of us who live in the more northerly climes here in the west can't walk down the road and just pick a pineapple or a mango or a banana any time we feel like it.   And they can't do that in northern Europe either.  Bananas aren't exactly in season in Canada right now and they haven't been for the past 17 million years or so.  Although interestingly enough, archaeologists did cause quite a stir a few years ago when they uncovered what was first thought to be a fossil of a banana in northern Alberta from only 10,000 years ago... which later turned out to be nothing more than a frozen penis.  No surprise there!  But in the Mediterranean.... ah yes, you can get grapes there.

Santorini, Greece

But I fear greatly for the future for Europe as well as our own.  And as much as the people of the world might finally be ready to get off their asses and get to work right about now, it might be too late.  All it would take though would be a little cooperation from the global fascist oligarchy who run ruin run every country on this blue planet.  But unfortunately they're simply too greedy to cooperate.  All it would take is that the governments

STOP SPENDING AND START LENDING in large and equal amounts

But alas... as always, greed rules.

 ----------------------   END OF ORIGINAL ARTICLE   -----------------------

Hat tip to 'westcoast' for providing a link to an excellent video series from PBS about the "Crash of '29".  Why does it seem like his timing is eerily 'right on schedule'?  Here's Part 1:

Until next time...

...........

Hindenburg Omen Settles Right Down - But Far From Relaxed

UPDATED APRIL 15, 2013 -Well folks, there's an hour to go and the NYSE has generated 88 new 52 week highs and 80 lows.  If the market generates five more lows today's going to be the day we see the first real Hindenburg Omen signal since August 2010.  Any and all other signals you may have seen reported since then have been absolutely bogus for various reasons.  The key reason being that those doing the reporting of HO signals are either not aware of the very strict rules or are interpreting them improperly.  In fact several times we have seen reports that the HO went off when the indicator wasn't even online.  It wasn't even allowed to issue a signal due to any number of violations of its own rules.  Those situations were very much like watching a television that wasn't even plugged into the wall.  Today there will be no such violations so it appears highly likely that we're going to see the first legitimate signal in over two and a half years.
If a signal is issued, I will publish a follow-up post after the market closes.


UPDATED APRIL 05, 2013 - At the close today it is becoming abundantly clear that the market has become very polarized with a few stocks trying to pull the NYSE uphill (and not enough of them at just 93) and half as many horses trying to pull it downhill.  With that many horses tugging to the downside it's pretty obvious that those pulling to the upside have one hell of a battle ahead of them.  In other words, the HO is just passing on the message that the odds of any great upside from here are pretty slim and the odds of a pullback are increasing daily.  How much of a pullback you ask?  The HO has no way of knowing that nor is its purpose to offer advice on that topic.  But what it can do is to simply show us what happened on all the previous occasions when the HO did issue a signal.  Those statistics have been available on this blog for over a year now on the tab at the top of the page entitled "So The HO Issues A Signal. What Happens Next? "

UPDATED APRIL 03, 2013 - As mentioned in yesterday's update, it wouldn't take much of a crack in the markets to get the HO sitting up in its chair with increased interest.  At the closing bell the WSJ reports 122 new 52 week highs being recorded (with 86 required today) and 48 new lows.  That number of new lows is about double what occurred yesterday and is marching toward the required 86.  The market internals are now hanging around right in the HO's wheelhouse.  This is definitely the atmosphere where a HO signal is possible.  Not necessarily "likely", but absolutely possible.  In other words, please don't necessarily "expect" a Hindenburg Omen signal tomorrow or Friday or next week, but don't be surprised if it happens either.

UPDATED APRIL 02, 2013 - Just a very short update because I imagine a lot of people are beginning to wonder if the HO is sending any messages these days.  The answer is this:  There are still too many new 52 week highs being generated although the number is still very anemic for a market that is at or near all-time highs.  That's very weak.  But on the other hand, the number of new 52 week lows is too small to trigger a signal although it is growing daily.  Any sort of sharp turnaround over the next few days or weeks would no doubt set the HO up so that it starts to really pay attention.  Right now though it's just monitoring, in the knowledge that the market is far weaker than it looks, but not weak enough to get overly alarmed about (at least from the perspective of the HO).  Stay tuned.  As well, if and when the HO does go off I will publish an article on that event on the day it happens.

UPDATED FEB. 25th, 2013 - Just a very short update to point out that as I mentioned on Friday, "... if the markets were to get another massive uplift courtesy of the Fed for whatever reason then the HO would just sit back and monitor the situation without too much concern."  I used the word "massive" and that was unnecessary.

In any case, that is exactly what we're seeing today and as a result the number of new 52 week highs is beginning to climb to more reasonable levels for a market that is so close to all-time highs.  What I found alarming last week was the suddenness with which the number of new 52 week highs plunged when the market pulled back.  In a healthy market, a relatively sharp pullback of 2% like that which we witnessed at the beginning of last week does not normally decimate the number of new 52 week highs like that.

As it stands this morning, with a snap-back rally off Thursday's low being nearly as sharp as the entire decline itself was, the number of new 52 week highs, although much higher today, are still dangerously low for a market that is so close to all-time highs.  In fact, as of this very moment they are still within the range that could theoretically set the HO off.  I do not expect that to happen over the next few days though even if the market were to finish slightly in the red today. The bottom line is that although things seem relatively calm for now, the HO has still got a bit of a buzz on indicating that the markets are not out of danger territory in the slightest.  

We'll continue to monitor the situation on a daily basis but will refrain from making needless updates to this post on an hourly basis.  So please feel free to bookmark this page and check in whenever you like.  Better yet, I've just got hooked up with Twitter and I'll twit a message to all the other twits out there when I do update this particular post.  I've been trying to install a "follow@AlbertarocksTA" button on the blog but without success so far.  However my good and helpful friend JW at TrendXplorer was kind enough to send me an email this morning with instructions on how to do that.  So hopefully I'll get that done today or tomorrow.  In the meantime if you'd like to receive a tweet when I update this post, please feel free to follow @AlbertarocksTA on Twitter.

EDIT:  BINGO!  And just like that, JW at TrendXplorer comes to my rescue yet again.  Thank you so much JW, your instructions were impeccable and now the 'follow' button has been installed at the top right hand corner of the blog.  Thanks again :-)


UPDATED FEB. 22ND, 2013 - For those who have decided to check in for updates, here's what is going on at the moment.   The main factor that the HO watches for is the number of new 52 week highs and lows generated in any given day on the NYSE.  The minimum number required for each is 2.8% of the total number of issues that traded that day and changed in value.  In other words, issues that are unchanged on the day are ignored.  So on each day the number of new highs and new lows required does fluctuate a bit.  But generally speaking it's usually about 85.  At this very moment that number is 84.

As of 1:30 Eastern there have been 87 new highs generated, so that condition has been met.  Just to give you a bit of perspective on that topic, in a healthy market those numbers generally end up anywhere between 250-600.  Today, even though the NYSE is very near an all-time high, only 87 new highs is nowhere near the number of new highs that the market usually produces when it is healthy.  That's what the HO is looking for.

But with the big bounce today the number of new lows only sits at 14.  Yesterday that number ended up at 42.  The same minimum percentage of new lows is required as well so in order for the HO to go off today, we'd need to see 70 more lows generated today.  And of course it would take a big sell-off here before we'd see that happen.  So even though there are plenty of stocks hanging around within 2% of their own 52 week low, it's not likely that the HO would issue a signal today.  Suffice it to say that if the markets were to get another massive uplift courtesy of the Fed for whatever reason then the HO would just sit back and monitor the situation without too much concern.  It would be prudent though to recognize that even though the HO might not issue a signal, as long as we're seeing so few new highs being generated the markets are somewhat polarized with as many horses trying to pull the wagon downhill as those pulling it uphill.  Not a healthy market environment at all.  We'll keep you posted with fairly minimal updates... just when it gets really dicey.



UPDATED FEB. 21ST, 2013 -  Just adding this update to inform readers that the number of new 52 week highs had, until Tuesday, still been very healthy.  That metric has changed in a hell of a hurry and today the numbers for new highs and lows were 62 and 42 respectively.  These are right in the range where the HO is suddenly sitting up and dusting itself off.  The best news is that this time around the HO is in no danger of going off-line any time soon due to a rule violation (regarding the 50 day MA on the NYSE).  We haven't had that luxury the last few times it got close to issuing a signal.

Keep in mind that contrary to 'any and every' report you've read in recent months, the HO has never gone off since August of 2010.  Every single report you might have read, I also read... and every single one of them was in error because in most cases the HO wasn't even on line at the time.  You can't get a signal from your television if it isn't even plugged into the wall, yet some of the other analysts who are not aware of the very strict rules apparently have the ability to watch TV when it's not plugged in.  A cool trick, but I wouldn't trust the news from a TV like that.

So stay tuned, we'll be updating this post as well as my ongoing reports at Seeking Alpha that have been running for 3 1/2 years now.

What follows below is an article I wrote last November.  We're just going to carry on with it right here on this page and supply the updates here in order to provide continuity.  So please feel free to bookmark this page and stay tuned.

UPDATED NOV. 8TH, 2012 -  Just adding this update to inform readers that the close shaves are continuing.  Repeated 'near misses' represent exactly the same type of activity we saw in the market internals just before the last HO signal events.  That shouldn't necessarily be taken to mean that "a signal is definitely coming" because that's not necessarily the case.  Needless to say though, it's certainly fair warning that regardless of whether the HO actually goes off or not, the markets are obviously on very shaky ground at the moment and are very polarized.  At the close of trading today the NYSE had generated 61 new highs and 85 new lows.  Had it produced 86 of each the HO would have issued a signal.  These types of close shaves should be viewed as being 'near misses' because the message they're delivering is still the same... the markets are on very thin ice right now.  On a side note, there was even one popular blog that 'today' reported that the HO has gone off.  It hasn't.  Right on that website, the author quotes the rules required for the HO to issue a signal and as much as I hate to be the bearer of bad news, those rules are 3 years old.  Nonetheless, that's a nice blog and the author is just another in the long list of innocent TA guys who didn't get the memo back when the rules were changed.  Nobody can blame him for that.  To his credit, he is looking at all the right things and is fully aware of the implications.  He's also probably a very nice man and to top if off, he's a Texan.  Texans and Albertans have always gotten along very well, mainly because of interactions concerning the oil business. :-)

==============  original article follows below  ==============

I'd just like to post this heads up that the Hindenburg Omen came about as close today to issuing its first signal since August of 2010 as we're ever going to see without it actually going off.

Contrary to any and all reports you may have read stating otherwise, the HO has not gone off at any time since that instance back in 2010.  A full explanation about why any previous reports that you may have read were absolutely false will be contained in a full article that will appear on this very page when the HO does issue a signal.  It's all those false claims by analysts who aren't even aware of the HO's rules that give it such a bad name.  It's the real deal, I assure you.  So please stay tuned.

Also, please be aware that this type of "near miss" occurred several times in the days leading up to the HO's signal during the week before and the "morning of" the flash crash.  Don't forget to click the tab at the top of this page if you haven't already done so and read about "So The HO Issues A Signal.  What Happens Next?" Awe to heck with it, just click this thing.

It's still possible the HO won't issue a signal at all, especially if there's some solid buying that enters the market tomorrow and thereafter.  It wouldn't take much to change these market internals dynamics for the positive but until we actually see it, rest assured that the market is extremely polarized and fragile right now.  But until the HO actually goes off, why don't you come on up north and we'll do a little surfing, Canadian style.

Surfin' Like A Boss

Please feel free to bookmark this page and check in regularly since the HO is just starting to hum again and any signal it issues at this stage is almost assuredly going to be the real deal.. 

Stay well!