Sunday, August 18, 2013

Regarding HO Signals - A Brilliant Analysis Out of Tasmania

Hello friends, followers, random readers, skeptics, debunkers, and curious onlookers.  It appears we have been given a gift... and I write this article in order to share it with you.

As all of you know by now, the Hindenburg Omen has put forth one of the strongest signals in its history, as judged by the tightest cluster of signals ever produced... as far as I know.  Let's put it this way, with 6
"Are you paying attention?" testing machine
'real' signals in 8 trading days who's going to quibble?  That's a strong enough warning for anybody who is at least half lucid.  Consider this... if you and your lovely family were out sailing on the Gulf of Oman some beautiful Saturday afternoon in your 42 footer, and the Iranian navy fired a 6-pounder across your bow, you know darned well you'd take notice.  The prudent sailor might even take the hint and reverse course.  But naturally there are always the few heroes who might be considered as... what's the best word... daft... the ones who would wait for a second volley just to be sure.  Not a smart choice in my opinion.  Not when taking cannon fire.  And especially not when the HO is firing the volleys.  For, he who dares hold his course even after 6 rounds have whizzed past his nose, each successive shot being closer than the last... well the odds are high that sailor's ship is surely destined to take one up the assigned target.

So now that we've accepted that the current Hindenburg Omen event is at the very least the real deal, we should embrace this rare opportunity to pay attention and watch how the drama unfolds.  And to that end, one of the questions that has been asked most frequently as of late is this; "Does the number of signals, or the type of cluster, have any predictive value about the extent of the decline that might ensue?".  The short answer, the most common response, and the answer I have used to squirm out of doing a ton of work in the form of back-research, is "No!  Once the HO has issued a confirmed signal, as far as the number of signals is concerned, all we can do is refer to the past history of 'what happened next' and take our best guess.  The actual number of subsequent (and redundant) signals is of no value in determining how far the NYSE might drop.".  That also happens to be the 'correct' answer.

But I have never heard this question asked: "Does the steepness of the rally prior to a confirmed Hindenburg event offer any predictive value?".  What a heck of a great question that is!  And one would have to think that of all the factors to ponder, that is probably the most logical one to investigate.  I have never done that investigation.  First of all, I didn't even think of it.  And secondly, it represents a lot of work, too much for the little time I have.  In fact, keeping my eye on the HO and reporting on it has taken up way too much of my time and focus over the past 4 years as it is... to the extent that I haven't published any article on any other topic since March 16th.  I have other things to do you know.  I have to tend to things.  Like, I take a bath every single month... sometimes more than once.

S. Cross, seen only by visionaries
But wait!  The strangest thing just happened.  Right out of the blue, at 2:00 in the morning on Friday, an old friend of mine from Tasmania who I haven't seen in at least 2 years pops up on Seeking Alpha and drops the whole bundle on my desk.  Let me back up a moment and tell you who this guy is.  He's an occasional commenter who goes by the name of Wave Rider.  Why the name Wave Rider?  I can only guess, but since he's from Tasmania I think it's safe to assume that he has done a little surfing somewhere along the line.  I hadn't really spoken with Mr. Rider all that often in the past, but I definitely remember him and do recall that we had some nice exchanges, beginning perhaps 3-4 years ago.  To be honest I don't even remember where that might have happened because we first met before 'this' blog even came into existence.  On second thought, it was probably over at Seeking Alpha.  In any case, I recall that Rider made a lot of sense and he was a nice fellow.  The type of guy I'd love to have a beer with some day.


Livin' the good life 'down under'.
With the name Wave Rider maybe he's referring to Elliott Waves.  But I can't help but to think of Tasmanians,  Kiwis and Australians as wavers of the water sports variety.  One thing I will state with all seriousness though, over the past 5 years I noticed that Aussies and Kiwis, for whatever reason, have amazing talents at technical analysis.  I'm dead serious... their ability to make sense out of mayhem regarding Elliott Wave Theory is truly impressive.  Coming up with Elliott Wave predictions is as much an art as a science and it's not easy to do.  I don't have the patience for it.  I don't thrive well in an environment where "being wrong quite often and having to find a viable alternative" is acceptable.  As a natural response to my own ineptitude, I have become acutely cognizant of real talent when I see it.  And those deep Southerners have it in spades.  Not to disparage accomplished EW practitioners from many other parts of the world who are very good at it as well.  It's just that... I don't know what it is, perhaps it has something to do with living under the Southern Cross, but man... people living 'down under' just seem to have a slightly different type of vision.  Clearer vision.  And it appears that applies to people living on Tasmania as well.

ENTER WAVE RIDER:  Right out of the blue, totally unsolicited, this man who seldom speaks pops up out of nowhere at 2 o'clock in the morning and delivers one of the finest detailed, properly focused, thinking-outside-the-box, analyses I've seen in quite some time.  It's targeted at exactly the right question: "Does the steepness of the rally prior to a confirmed Hindenburg event offer any predictive value?".  Wave Rider actually went to the trouble to do that analysis, going all the way back to 1986.  And then he handed it to us.  What a gift!  Not unlike Satoshie Nakamoto of Bitcoin fame.  But unlike Satoshie, Wave Rider does indeed exist.  With his gracious permission, I'm proud to offer readers his report as follows:

=========================
[highlights by AR to draw attention to key words]

His basis: "I have always been interested that the number of sightings of the HO in a cluster does not seem to be a predictor of the strength or timing of any subsequent downturn. I have therefore been spending some time on the keyboard examining all the data associated with the recorded confirmed HO's going back to 1986.

His qualifiers: "Rather than use the DJIA that Dr. Robert McHugh used, I have used the S&P as it probably gives a better indication of the wider market. You still get the same approximate proportions of declines that are regularly quoted for the HO. i.e. 25% of the time the market falls by 15% or more, etc."

His general observation: "The interesting thing though, is that while the number of sightings in a cluster is no real guide to the dimension of any decline, the pace of the rising market before a confirmed HO is. Generally, the majority of confirmed HO with subsequent major declines have come after the market has averaged a gain of over 0.08% per day since the low that followed the previous HO. How long ago the last HO occurred does not seem to affect this observation."

The data he uncovered: "The results of the HO which followed daily gains averaging over 0.08% were -31%, -30%,-21%,-18%, -15%, -10%, -5%, -3% and 0%. That's 6 out of the 8 declines of 10% or more. By comparison, in the case of all other confirmed HO where the average daily rise of the market was less than 0.08% the average decline after a HO averaged less than 7%.  And that was only brought up that high by a couple of outrider observations."

Wave Rider's Conclusion: "The interesting thing about the cluster of HO you are currently recording is that the average daily gain since the market low following the last confirmed HO is the second highest on record. That assumes the May/June HO is considered a different one to the August one we are currently monitoring (AR's note: correct assumption). This suggests the present HO could be a portent for a very significant market decline indeed."

An additional point: Hence the rule "The faster they rise the further they might fall". Incidentally, the average daily growth rate before the August 5, 2013 HO was 0.193%. That is by far the highest ever, except the doubtful Dec 1998 HO."

[AR:  Good lord, I hope readers appreciate the implications of that last "additional point".]

========================= 

I also hope readers appreciate how many hours went into this analysis.  When I asked Wave Rider for his permission to reproduce this meaningful work, he graciously granted it although initially he hadn't anticipated that his offering would reach this wider audience [yes, this blog gets far more weekly visits than the HO blog at Seeking Alpha does, not to mention the huge exposure that Global Economic Intersection will also be providing for Mr. Rider's Opus].

As a result of my request, WR revisited his work just to make sure he was satisfied with it, and then did offer a few additional comments and clarifiers.  In order that you can easily find all his commentary, I'm happy to provide this link that should take you directly to the bundle he initially dropped on my desk, this one which will take you directly to the comment which includes his data set, and this link which would take you to the entire blog where you can scroll the comments section to read Wave Rider's additional commentary and detail, after the fact.

On behalf of all readers, I offer our sincere thanks Wave Rider. We should also accept and acknowledge that Mr. Rider did not make any prediction, he simply presented a beautiful piece of work for our consideration... which is exactly the same as what the Hindenburg Omen itself does.  The HO simply presents the facts and contrary to popular misconception, does not make any predictions.  With that sorrily-misunderstood fact now finally (hopefully) becoming clear to the debunkers, we recognize that Wave Rider's analysis is simply much too good to languish in that now-very-quiet room over at Seeking Alpha.  This is very valuable stuff.  And for that... payment is in liquid gold:

CHEERS MATE!


Thursday, August 8, 2013

Hindenburg Omen Fires off 3rd Volley in 4 Days

Just a quick update. As readers are aware by now, the Hindenburg Omen fired off a new signal on Monday [when I wasn't looking because it was a holiday in Canada :-) ]

As I reported that evening, with the most recent HO signal having occurred on June 19th, the Monday signal could have been considered as part of a larger cluster that began back in June.  But then the HO issued another signal on Tuesday in which there were considerably more new lows generated than new highs.  And today, yet another signal has occurred.  No matter how we want to classify this cluster, the message is the same... that although the NYSE ($NYA) is still officially rising (as determined by the fact that the 50 day MA on the NYSE is rising), there is still a horrid degree of polarity that the HO was designed to detect and issue its alerts on.

So what happens next?  If you haven't read the answer to that question yet... you can find it here.  In brief... it's not necessarily the end of the world.  In fact there is a 73% chance that there will not be a major stock market crash.  Gotta think positively, right?

So there you have it... HO signals issued on August 5th, 6th, 8th, 9th,13th and 14th, 2013.

Just a reminder....
 How fast can a bubble pop?  Faster than the blink of an eye!

Monday, August 5, 2013

Hindenburg Omen Fires Off Another Volley

Just a short report today friends.  It was a long weekend in Canada so I took my eye off the markets for today.  But when I checked the market internals stats this evening I was a bit surprised to have discovered that the Hindenburg Omen issued another signal today.  It was a rather strange one as well because the numbers for the new 52 week highs and lows were BOTH higher than usual for an HO signal day.  Nonetheless, all conditions were met so the market has generated another HO signal.

With the last HO signal having occurred on June 19th, this one could be still be considered as part of a larger cluster that began back then.  No matter how we want to classify it though, the message is the same... that although the market is still officially rising (as determined by the fact that the 50 day MA on the NYSE is rising), while there were 206 new 52 week highs generated, there were ALSO 111 new lows.  And that dear readers is the exact type of polarity that the HO was designed to detect and issue an alert on.

So there you have it... another HO signal issued on August 5th, 2013.

Just a reminder....
 How fast can a bubble pop?  Faster than the blink of an eye!

Thursday, June 20, 2013

Hindenburg Omen Cluster Continues

UPDATED JUNE 19, 2013  - The Hindenburg Omen went off again today but as was the case with the recent signal on June 10th and the near miss of June 13th (below), it is yet another redundant signal since we already had a confirmed HO event 15 days ago on June 4th.  When clusters of HO signals like these begin to develop the message is more than clear... although the market is bouncing, although the VIX and VXX are showing ridiculous degrees of complacency, the markets continue to show serious degrees of polarity in that there are darned near as many stocks making new 52 week lows as there are making new highs.  How could anyone possibly have faith that the markets are going to continue to head higher from here even in the face of seemingly endless floods of liquidity courtesy of the Fed?  When the Hindenburg Omen goes off in clusters of alarms like this, it does so for a reason.  True enough, the Fed is determined not to let equities markets collapse.  But when the market internals are making it quite clear that despite the Fed's best efforts the market internals show serious weakness, the most prudent investors would take the hint and at least stand aside.

UPDATED JUNE 13, 2013  - The Hindenburg Omen came very close to going off again today but again, as was the case with the June 10th signal (below), it would have been considered as just another redundant red flag since we already had a confirmed HO event 9 days ago on June 4th.

UPDATED JUNE 10, 2013 - The Hindenburg Omen went off again today but it is a redundant signal since we already had a confirmed HO event 6 days ago on June 4th.  Nonetheless, and this is definitely worth noting, although the market has put in a bounce of sorts nothing has changed internally.  The polarity on the NYSE that the HO is concerned about is still there.

....................Original Article of June 4th Follows ....................
 
According to the WSJ, the official source for data regarding new 52 week highs and lows on the NYSE, with 10 minutes remaining in the trading day the final piece of the puzzle was put in place when the Hindenburg Omen issued its second signal in four days.  And with that we now have an official Hindenburg Omen event, the first since August of 2010.

As all my followers know by now, in order for an official Hindenburg Omen signal to go into the history books the HO must issue two signals within 30 trading days.  One prominent analyst declares 36 days but is ambiguous about whether that is calendar days or trading days.  This has caused some confusion regarding that rule, so here it is according to the inventor of the HO, Mr. Jim Meikka:  The rule is 30 trading days.

Therefore, last Friday's signal occurred too late to be considered as the second and confirming signal for the April 15th sighting.  With today's signal, the second in only 4 calendar days, that entire discussion is now a moot point. We can confirm that the Hindenburg Omen has just issued its first "official event" since August 2010.  There could very well be more occurrences of the HO signal tomorrow or next week or the week after that, but now that the second signal has been issued today any further alerts will be considered redundant.  They are not required and they are not taken into consideration.  All they would accomplish would be to reconfirm that the market remains very polarized.  In fact, if a serious decline were to get underway the equities markets should enter into a state where there is no more polarization because the majority of the horses will be pulling the stock wagon downhill.  Therefore any further HO signals are not only irrelevant, they are likely to stop occurring should the markets decide to head south with some authority.

As well, and this is a ruling factor, if the NYSE begins to fall from here the 50 day moving average on the NYSE will soon be turning downward which would effectively render the Hindenburg Omen incapable of issuing any further signals.  Because of the 50 day MA rule, there is actually a fairly small window of opportunity within which the HO can issue its alerts and once the MA rolls lower that window is closed.  This has always been one of the primary reasons the Hindenburg Omen goes off so seldom.  It's also the primary cause of erroneous claims by uninformed analysts that the HO had gone off when in fact it had not (because the moving average had rolled over which to the HO is like unplugging your TV set from the wall).  And by extension, it's the primary reason that the HO gets a bad name in the press, one that it absolutely does not deserve.  In fact, and you have no idea how much this irks me, feel free to click this link to visit my last report on the HO and see for yourself.  One commenter asked the damning question "How many times has this thing failed over the past 4 years?".  And the answer of course is "none".  For god's sake, it has only gone off once in the past 4 years (meaning a 'confirmed' event).

Click here for a link to the live and updating chart.

By now most of my regular followers have probably read the short article entitled "So The HO Issues A Signal.  What Happens Next?"  If you haven't read it yet, by all means feel free to hit the link and do so now.  For convenience sake, the record of what occurred in the markets following all of the previous Hindenburg Omen signals are listed below.  This data is supplied by Dr. Robert McHugh who has also compiled an excellent list of what transpired after every HO event in the past.  You can find that data here:

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)

There's not much else to report regarding the HO, nor would I dare make any predictions about what comes next.  All we know with certainty is that the Fed has proven to be very powerful in not only saving the markets from the decline that should have kept going right on through the March 2009 low, but in driving the markets higher from there by a mind blowing 153.4% (S&P 500).  In other words, the Fed has driven the stock markets up at the rate of 24.56% per year (compounded) for 51 consecutive months now and claims this meteoric rise is due to "improving economic conditions".  Give me a break! 

To say that the recent lofty heights of equities markets around the world are way out of line and totally artificial would be the understatement of this century.  Therefore, to expect that the markets will put in a reasonably mild correction of only 3 to 5% is probably a bit on the optimistic side.  Nonetheless, a minor decline is entirely possible, at least as revealed in the HO's record book.  And in light of the obvious intentions of the meddling central banks of the world, a minor decline is possible.

To put a positive spin on the possibilities that lie ahead for the global stock markets, the record clearly shows that there is a 73% chance that a major life changing stock market event is not going to occur.  And looking at the bright side, there's a 50% chance that the decline will be no greater than 10%.  As Jim Meikka himself said "The Hindenburg Omen is poorly named."  It was not Mr. Meikka who gave this amazing indicator that title, it was his predecessor Kennedy Gammage who had been working on a similar indicator using the McClellan Oscillator as one of it's primary components.  To quote Tom McClellan:

"The ominous sounding name of this signal comes from the late Kennedy Gammage, who passed away Jan. 3, 2006, just a few months after he retired from writing The Richland Report newsletter.  Ken was one of the great proponents of the McClellan Oscillator and Summation Index, and was a big reason why they came to be so well known.  The McClellan Oscillator being positive or negative is one of the criteria for a Hindenburg Omen, so it was probably out of working with that indicator that Miekka came into contact with Ken Gammage.  I suspect that the idea for the name "Hindenburg" was related to a similar signal using NH and NL called the "Titanic Syndrome" which was developed by the late Bill Ohama."

So there you have it my friends.  We should probably expect just about anything now, but it wouldn't hurt that all of us think positively and keep our fingers crossed for the "not greater than 10%" theme. Our chances are 50/50.

Wishing all of you the very best



Tuesday, June 4, 2013

Hindenburg Omen Now Official - Second Signal In 4 Days

UPDATED JUNE 19, 2013  - The Hindenburg Omen went off again today but as was the case with the recent signal on June 10th and the near miss of June 13th (below), it is yet another redundant signal since we already had a confirmed HO event 15 days ago on June 4th.  When clusters of HO signals like these begin to develop the message is more than clear... although the market is bouncing, although the VIX and VXX are showing ridiculous degrees of complacency, the markets continue to show serious degrees of polarity in that there are darned near as many stocks making new 52 week lows as there are making new highs.  How could anyone possibly have faith that the markets are going to continue to head higher from here even in the face of seemingly endless floods of liquidity courtesy of the Fed?  When the Hindenburg Omen goes off in clusters of alarms, it does so for a reason.

UPDATED JUNE 13, 2013  - The Hindenburg Omen came very close to going off again today but again, as was the case with the June 10th signal (below), it would have been considered as just another redundant red flag since we already had a confirmed HO event 9 days ago on June 4th.

UPDATED JUNE 10, 2013 - The Hindenburg Omen went off again today but it is a redundant signal since we already had a confirmed HO event 6 days ago on June 4th.  Nonetheless, and this is definitely worth noting, although the market has put in a bounce of sorts nothing has changed internally.  The polarity on the NYSE that the HO is concerned about is still there.

....................Original Article Follows ....................
 
According to the WSJ, the official source for data regarding new 52 week highs and lows on the NYSE, with 10 minutes remaining in the trading day the final piece of the puzzle was put in place when the Hindenburg Omen issued its second signal in four days.  And with that we now have an official Hindenburg Omen event, the first since August of 2010.

As all my followers know by now, in order for an official Hindenburg Omen signal to go into the history books the HO must issue two signals within 30 trading days.  One prominent analyst declares 36 days but is ambiguous about whether that is calendar days or trading days.  This has caused some confusion regarding that rule, so here it is according to the inventor of the HO, Mr. Jim Meikka:  The rule is 30 trading days.

Therefore, last Friday's signal occurred too late to be considered as the second and confirming signal for the April 15th sighting.  With today's signal, the second in only 4 calendar days, that entire discussion is now a moot point. We can confirm that the Hindenburg Omen has just issued its first "official event" since August 2010.  There could very well be more occurrences of the HO signal tomorrow or next week or the week after that, but now that the second signal has been issued today any further alerts will be considered redundant.  They are not required and they are not taken into consideration.  All they would accomplish would be to reconfirm that the market remains very polarized.  In fact, if a serious decline were to get underway the equities markets should enter into a state where there is no more polarization because the majority of the horses will be pulling the stock wagon downhill.  Therefore any further HO signals are not only irrelevant, they are likely to stop occurring should the markets decide to head south with some authority.

As well, and this is a ruling factor, if the NYSE begins to fall from here the 50 day moving average on the NYSE will soon be turning downward which would effectively render the Hindenburg Omen incapable of issuing any further signals.  Because of the 50 day MA rule, there is actually a fairly small window of opportunity within which the HO can issue its alerts and once the MA rolls lower that window is closed.  This has always been one of the primary reasons the Hindenburg Omen goes off so seldom.  It's also the primary cause of erroneous claims by uninformed analysts that the HO had gone off when in fact it had not (because the moving average had rolled over which to the HO is like unplugging your TV set from the wall).  And by extension, it's the primary reason that the HO gets a bad name in the press, one that it absolutely does not deserve.  In fact, and you have no idea how much this irks me, feel free to click this link to visit my last report on the HO and see for yourself.  One commenter asked the damning question "How many times has this thing failed over the past 4 years?".  And the answer of course is "none".  For god's sake, it has only gone off once in the past 4 years (meaning a 'confirmed' event).

Click here for a link to the live and updating chart.

By now most of my regular followers have probably read the short article entitled "So The HO Issues A Signal.  What Happens Next?"  If you haven't read it yet, by all means feel free to hit the link and do so now.  For convenience sake, the record of what occurred in the markets following all of the previous Hindenburg Omen signals are listed below.  This data is supplied by Dr. Robert McHugh who has also compiled an excellent list of what transpired after every HO event in the past.  You can find that data here:

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)

There's not much else to report regarding the HO, nor would I dare make any predictions about what comes next.  All we know with certainty is that the Fed has proven to be very powerful in not only saving the markets from the decline that should have kept going right on through the March 2009 low, but in driving the markets higher from there by a mind blowing 153.4% (S&P 500).  In other words, the Fed has driven the stock markets up at the rate of 24.56% per year (compounded) for 51 consecutive months now and claims this meteoric rise is due to "improving economic conditions".  Give me a break! 

To say that the recent lofty heights of equities markets around the world are way out of line and totally artificial would be the understatement of this century.  Therefore, to expect that the markets will put in a reasonably mild correction of only 3 to 5% is probably a bit on the optimistic side.  Nonetheless, a minor decline is entirely possible, at least as revealed in the HO's record book.  And in light of the obvious intentions of the meddling central banks of the world, a minor decline is possible.

To put a positive spin on the possibilities that lie ahead for the global stock markets, the record clearly shows that there is a 73% chance that a major life changing stock market event is not going to occur.  And looking at the bright side, there's a 50% chance that the decline will be no greater than 10%.  As Jim Meikka himself said "The Hindenburg Omen is poorly named."  It was not Mr. Meikka who gave this amazing indicator that title, it was his predecessor Kennedy Gammage who had been working on a similar indicator using the McClellan Oscillator as one of it's primary components.  To quote Tom McClellan:

"The ominous sounding name of this signal comes from the late Kennedy Gammage, who passed away Jan. 3, 2006, just a few months after he retired from writing The Richland Report newsletter.  Ken was one of the great proponents of the McClellan Oscillator and Summation Index, and was a big reason why they came to be so well known.  The McClellan Oscillator being positive or negative is one of the criteria for a Hindenburg Omen, so it was probably out of working with that indicator that Miekka came into contact with Ken Gammage.  I suspect that the idea for the name "Hindenburg" was related to a similar signal using NH and NL called the "Titanic Syndrome" which was developed by the late Bill Ohama."

So there you have it my friends.  We should probably expect just about anything now, but it wouldn't hurt that all of us think positively and keep our fingers crossed for the "not greater than 10%" theme. Our chances are 50/50.

Wishing all of you the very best



Friday, May 31, 2013

Hindenburg Omen Goes Off Again

The Hindenburg Omen has issued a signal for the second time in the past 6 weeks, having issued a signal on April 15th.  Prior to that the last signal it issued was in August of 2010.  According to the rules set forth by the HO's creator, Jim Meikka, the market would need to generate a second and 'confirming' signal within the next 36 days.  Nonetheless, we had better be aware that the HO is telling us that the markets are currently on very shaky ground.

In the April 15th event, the markets had put in a short term peak just two days earlier with the S&P registering a high of 1597.  As we can all see in retrospect, the HO had actually gone off in what turned out to just be the middle of a massive 4-day decline which sent the $SPX all the way down to 1536, a decline of 3.76%.  Hardly the disaster legends are made of.

[RANT ALERT]:  But then again, I don't think that any time in the history of the entire solar system has there been such concerted effort by the demented central bankers of the world to prop up the equities markets as a side effect of trying to create inflation in the face of the greatest global deflationary pressures that ever existed.  Deflationary pressures of the bankers' own creation... deflationary pressures that are the natural ultimate outcome of decades of expansionary policies that no longer work.  The bankers have literally put the entire world into debt (to the bankers, and that's the most dangerous aspect) to such an extent that by now the world is simply saturated in debt, debt that can barely be repaid with interest rates at the lowest levels of all time.  Rates that the bankers are determined to hold down near zero no matter what it takes, thinking they can be successful at holding rates down by destroying currencies, which by natural logic would normally create inflation which in turn destroys the bond markets.  A classic case of the snake eating its own tail.  The solution to this dilemma appears to be that the bankers themselves are now buying up all the new bond issuance since there is nobody left who is willing to accept them at such low rates in the face of such efforts to destroy those same bonds.  Again, the snake eating its own tail.

I'm not sure what 'you' think of the bankers' policies but to my way of thinking there can be only one of two distinctly different outcomes, one being far worse than the other.  Either the bankers lose control and the entire global banking system collapses into a smouldering heap (believe it or not that's the good outcome), OR the bankers end up being successful, owning the vast majority of all sovereign debt in existence, owning the majority of the global stock markets, owning the majority of all global real estate debt and owning all of the student loan debt.  In the latter horrifically frightening case... they essentially own all of mankind.  The sickest aspect of it all is that the day would arrive when the rate of interest no longer matters, because once the entire world is begging for mercy, the bankers could forgive all debt in return for deed to basically everything including mankind itself.  No more debt... and the bankers own the entire planet and all its inhabitants.  By the way, that has been the goal of the dark overlords for centuries.  And in case you haven't spotted it by now, that's the bad outcome.

But in the name of hope let's briefly discuss what's going on with some of the countries that have been in the news a lot over the past couple of years.  Some of them reached their end game a couple of years ago, Greece, Ireland, Iceland to name a few.  Of those three countries, Greece and Ireland solved their economic problems caused by too much debt by bending over and allowing the ECB to ram billions more worth of loans up their tiny arses.  Not exactly the best way to get out of debt... by borrowing more.  A six year old child understands that.  The Icelanders on the other hand... apparently nobody can goose a Viking.  And the Icelanders did what 'real' men do... they kicked the invading rapists square in the beanbag like every other European country should do, and started to rebuild their village from the ground up.  Today Iceland is already back on their financial feet and have one of the best performing economies in all of Europe.

On a much, much bigger scale, according to Kyle Bass Japan has also reached the end of the road.  In this great 20 minute interview with Bloomberg, Mr. Bass spells out the Japanese situation with the typical humility and honesty he is well known for.  As per his forecast, we can already see the Japanese bond market starting to unravel, and as difficult as it is to accept... that's the good outcome. [END OF RANT ALERT]

Records of what happened in the markets following past Hindenburg Omen signals show that a decline of at least 2%-5% will occur 92% of the time, with more severe pullbacks being less likely.  For example, of all the HO signals since it first came into being, a larger decline of 8%-10% was recorded more often than not... 54% of the time.  So as it turned out, the recent signal of April 15th was followed by one of the smaller market declines, not surprising given the current mindset of the ECB, FED and BoJ.  But let's not let our guard down because regardless of the fact that bankers have pretty much ruined every market on the planet, the NYSE is now at a degree of polarization that no matter how we slice it, is very revealing.  The markets are on very thin ice.

So we simply remain mindful of what the odds are.  The stats below are reprinted from the April 15th article which accompanied the HO signal at that time:

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 very best...


Thursday, May 23, 2013

Hindenberg Omen Beginning to Hum Again

This will just be a short post to alert my friends and followers to the fact that the market is now in a range where the HO is beginning to sit up and take notice.  Yesterday, despite the markets around the world taking a pretty hefty dump, there were still over 400 new 52 week highs attained on the NYSE, so the HO wasn't even interested yesterday.

Today it's a different story.  At the present moment, with an hour to go in the trading day, there have been 33 new highs and 36 new lows recorded.  The minimum for each is 85, so at present there is little likelihood the HO will issue a signal today either.

One important factor is this... the most recent HO event occurred on April 15th.  In order for a second and confirming signal to be accepted, it must happen within 36 days of the first.  Today is 38 days since the last signal so technically we are starting all over again.  The next signal will be recorded as another "initial" signal.  And if some of the better known market technicians such as Walter Murphy are correct, the market is currently in a 4th wave correction off the April low, which of course implies higher prices to come.  If that's the way things turn out, then the HO, which is working perfectly well, is more than likely in sync with those opinions.

But stay tuned... we're on the case and will report the next HO event when it occurs.

Monday, April 15, 2013

Hindenburg Omen Issues First Signal Since Aug. 2010

UPDATED APRIL 18, 2013Well, 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

.

Saturday, March 16, 2013

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.




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

Sunday, March 3, 2013

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!