Today would be a great day to bring everyone up to speed on what's been happening on the Hindenburg Omen front lately. Obviously you can see that this blog had gone very quiet on that topic and the main reason for that is that as of May 3rd the Hindenburg Omen has been out of commission due to a rule violation. It's a rule which for 27 years has been absolutely cast in stone... an absolute MUST in accordance with the rules set out by the inventor of the HO, Mr. Jim Meikka.
IMPORTANT UPDATE AT BOTTOM:
I realize that there have been several stories lately stating that the HO "has gone off". But unless there has been a rule change regarding the requirement that the 50 day MA on the NYSE "must be rising", there is simply no way that any recent report of an HO signal can be accurate. To the best of my knowledge, the last time the HO issued a signal was in August of 2010. I say this with all due respect to those who have reported an HO signal recently because it is possible that Mr. Meikka changed a rule that has been in place since day one of the HO's very existence, but I didn't get the memo. That's possible... and if that's the case then I am behind the curve. Until today I had made every effort to ensure that I was "ahead of the curve" regarding the HO rules. Otherwise I'd just be your everyday friendly reporter with inaccurate data. And if that was the case I wouldn't even bother writing 10 keystrokes about it.
|NYSE Daily - A chart specifically designed to monitor the moving average. Click here for a live and updating version.|
I do know with certainty though, that there are some sites who are still using the rules of 10 years ago, totally unaware of two very important changes that Mr. Meikka made a couple of years back to adjust for the relatively higher number of ETFs and bond funds. Those changes absolutely 'did' prevent a couple of signals that I know of. In any case, in order to attempt to clarify the possibility that I have missed an important adjustment by Mr. Meikka, I have sent an email off to Mr. Arthur Hill after reading his report at StockCharts, in an attempt to find out if he can enlighten me about that change. [I was only informed of Mr. Hill's article yesterday.] I'd get in contact with Mr. Meikka himself if I could but to date I haven't discovered how to contact him. I seriously doubt he has changed this rule though since it's so germane to the entire workings of the HO. But I'm just as fallible as the next guy... I might be wrong. Mr. Hill is a very credible analyst so to be honest I'm not willing to just disregard his findings. But until I get some sort of verification that Mr. Meikka has changed this rule... I have to surmise that there has been no HO signal since August of 2010. As I said though, I stand to be corrected if necessary.
In any event, as of the close yesterday, that's all a moot point now since the 50 day moving average on the NYA (NYSE) has turned higher. So as of this morning the Hindenburg Omen is back online and able issue an alert. And judging by the price action of 10 weeks ago, it isn't likely the HO will be switched off in the immediate future. It makes perfectly good sense too, that the HO "should be" switching on and off as it gets near to issuing a signal. After all, what the HO issues warning about is an imminent decline. One would think that would happen near a market top, right? And what else happens at a market top? The 50 day moving average rolls over! So obviously there's a fairly narrow window within which the HO can raise the flag. In that regard, the HO is very much like a television that's on its final legs. It first begins to flicker, then it issues an important alert, then it breaks down altogether. Once the HO has issued its signal accurately and the market rolls lower, and it the 50 day MA rolls over with it as it should, the HO is immediately rendered "dead". But it has done its job.
But regarding those who don't really care about the official rules, as I described to my good friend Pebblewriter in a recent comment: "It's similar to watching a TV that isn't plugged in. If it's not plugged in we're not gonna get a signal. But somehow some of the analysts out there are able to sit back and watch the HO that's not plugged in and by some form of magic get some kind of entertaining "Urgent News Alert" out of it. That's quite the talent isn't it?" When I made that statement, I was envisioning one site in particular which is no longer even in existence where the author was just chomping at the bit to "be the first" to make the announcement. It always amuses me to see who's going to be first and then who else takes the bait and jumps on that bandwagon. Even ZH has reported HO signals when the TV wasn't even plugged in. So my entire purpose in running a blog at Seeking Alpha that has been dedicated solely to the HO topic for nearly three years now was to provide "accurate" signals for my friends over there. And of course... I also brought the topic over here when I started this blog a half year ago.
UPDATE: Only moments after having published this article, the mystery has been solved. I just got of the phone with Tom McClellan and he informs me that there has been no rule change and that my understanding of the rules is correct. Unfortunately (or fortunately), Mr. McClellan confirms that my suspicion that Mr. Hill 'misinterpreted' the rules is indeed correct. In no way do I mean to disparage Mr. Hill either. He's a stud of an analyst for whom I have a great deal of respect. It's just one of those innocent things.
So stay tuned... yesterday the number of new 52 week highs and 52 week lows were right in the ballpark for an HO signal. And now that it's "back online" any signal in the coming days "will be" accurate. Let's just sit back and see what happens now.
Meanwhile, how about a little Joe Cocker? Live in Berlin.