OT: Hindenburg Omen?

[SPOKE]

Since we have some very bright forum members I thought I'd get your thoughts on the "Hindenburg Oman".

[dauwhe]

Omen?

[William]

Oh man! :rolleyes:





William ;) :)

[Blue Jays]

"Oh, the humanity!"

[SPOKE]

Omen?

Yes.....that word.
Thanks for the correction.

[gdw]

The O man in the White House will never let it happen.

[MadRocketSci]

imho looking at technical indicators is a lot like watching weather forecasts...there is a loose correlation between what they predict and what actually happens. In this case it is about 25%.

if it's springtime in tornado alley, keep your insurance premiums paid, along with your storm shelter or basement ready with heavy oak table and blankets, before the sky turns green and the tornado watch scrolls across your TV. If anything does happen be glad you were prepared, if nothing happens, carry on happily.

Or, to be a real pro, buy a CDS (Complete Destruction Swap) on your neighbor's house and start your rain dance in January....

[1centaur]

The wiki on the HO is relatively convincing as to the correlation with market declines and the logic behind them. I think the term "crash" is overused re: the HO, but it's not unlikely that a market decline could follow a period of market confusion as suggested by simultaneous large amounts of new highs and lows.

Just looking at the market and reading the blogs, I think a 5%+ correction would surprise nobody and would confirm the HO for believers. The fundamentals are not good and the firepower is waning. Israel could attack Iran at any time and oil prices could spike. Deflation fears far outweigh inflation fears in the public discourse. I observe the high yield market daily and think dealer behavior is on the weak side. Coming exactly when most traders take vacations, it's hard to tell smoke from fire. 10% down feels possible on my gloomier days. A true crash seems pretty unlikely. The inventor of the HO sold all his stocks when the HO was confirmed - if he avoided a 5% correction it won't have been worth it.

My bottom line is that the market is not robustly strong, and when that's the case corrections are more probable. If we are in a sideways economy for the next couple of years, I would expect numerous occasions of simultaneous highs and lows just based on winners and losers in business under those conditions. This sort of feel may be why many retail investors have pulled money out of stocks and put it in fixed income.

[Louis]

I love chartists. Correlation = Causation

[CNY rider]

The inventor of the HO sold all his stocks when the HO was confirmed - if he avoided a 5% correction it won't have been worth it.

My bottom line is that the market is not robustly strong, and when that's the case corrections are more probable. If we are in a sideways economy for the next couple of years, I would expect numerous occasions of simultaneous highs and lows just based on winners and losers in business under those conditions. .

If the inventor is a trader it is certainly worth selling all stocks.
Positions are easily re-established. Traders do not willingly take 5% hits.

The new highs list contains very few real businesses. Most are yield related plays trading at new highs.

[CNY rider]

I love chartists. Correlation = Causation

I'm a chartist and I love me too. I love fundamentalists even more because they make it all possible.
I don't believe correlation equals causation.
I do believe that my ability to read charts, coupled with smart trading strategies and risk management techniques gives me a serious edge in the market.
My returns over the years prove it.

[Louis]

My returns over the years prove it.

In that case, congratulations and good luck in the future.

[1centaur]

If the inventor is a trader it is certainly worth selling all stocks.
Positions are easily re-established. Traders do not willingly take 5% hits.


I don't think there's certainty. If those were gains and he owes the taxes (maybe ST cap gains) and if the stocks involved are not of IBM liquidity, then he could get whipsawed and be in net regret. If he's quick trading super liquid stuff then "getting out" is not as momentous an event as the headline suggests, since he might get out 3 times a month.

[Climb01742]

good line from a cnbc piece:

"Unfortunately, coincidence often mimics correlation."

not saying it's true or untrue for the market but it is true for life.

just curious: what is a "chartist"?

[CNY rider]

good line from a cnbc piece:

"Unfortunately, coincidence often mimics correlation."

not saying it's true or untrue for the market but it is true for life.

just curious: what is a "chartist"?


From the Market Technicians Association:

http://www.mta.org/eweb/docs/pdfs/whatis_techanalysis.pdf

[Louis]

From the Market Technicians Association:

http://www.mta.org/eweb/docs/pdfs/whatis_techanalysis.pdf

This is like asking a flat-earther to define his field of inquiry.

Technical market analysis works anecdotally but doesn't stand up well to serious academic analysis. I think it was Warren Buffett who said something about getting the same answer if the charts were held upside down...

[MattTuck]

Love this forum... biking AND investment advice.

As for this so called Hindenburg Omen....

For most professional traders (and some retail investors), they can use put options to relatively inexpensively buy downside protection instead of realizing taxable gains. On the other hand, who believes stuff like this?

http://i.bnet.com/blogs/its_a_trap.jpg

[johnnymossville]

The Hindenburg Omen is correct a whopping 25% of the time. I'd just call that bad luck. You'll have better luck with a coin toss.

[MadRocketSci]

can't we all get along? :beer:

"charts don't lie, people do" (tm)

do what works for you. or do both.

25% chance of a major correction is just bad luck? Not. Buy puts, raise cash, whatever you want, but protect yourself (ideally before any blimp warning lights start flashing) cuz there are plenty of people who can't roll their tongue.

[1centaur]

25% right on a crash, but there have not been many crashes. The data is better for a notable downturn. Lack of false positives is pretty good. From wiki:

From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and usually takes place within the next forty days. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines.

[MattTuck]

25% right on a crash, but there have not been many crashes. The data is better for a notable downturn. Lack of false positives is pretty good. From wiki:

From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and usually takes place within the next forty days. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines.


Would be interesting to see where the market declines come from after one of these "omens". The criteria involves certain numbers of new 52 week highs AND lows. I wonder if the declines have more to do with the stocks making new highs reverting to more normal valuations, or if the entire market is affected.

Would make a difference potentially in how to position your portfolio. Shift to value (if only "expensive" stocks take the hit) or shift to cash/buy protection (if the entire market moves).

[1centaur]

That's a great point.

[MattTuck]

That's a great point.

Unrelated to this thread, I happened to be browsing the "white bikes thread".

based on your bike collection, I do believe people shouldn't argue with you when it comes to financial markets ;)

http://a.imageshack.us/img32/7346/img0332go.jpg

[Ahneida Ride]

Monthly S&P looks weak...

I'd suspect another re-test of the 1000 level.
Lot's of support at 1000.

[Ahneida Ride]

Of course, we could hire Nobel Laureates, and the best Ph.D.s frns can buy.
and have then analyze the market.

wait..... wasn't that Long Term Capital Management ? :crap:

[MadRocketSci]

Of course, we could hire Nobel Laureates, and the best Ph.D.s frns can buy.
and have then analyze the market.

wait..... wasn't that Long Term Capital Management ? :crap:

it's not a failure of fancy math and computational prowess. it's all in the assumptions you make to run your simulations or models, ie, common sense, smell tests, "wait, this is stupid", etc. garbage in, garbage out.

applies for any situation when you are trying to predict or model reality with a computer.

[Ahneida Ride]

it's not a failure of fancy math and computational prowess. it's all in the assumptions you make to run your simulations or models, ie, common sense, smell tests, "wait, this is stupid", etc. garbage in, garbage out.

applies for any situation when you are trying to predict or model reality with a computer.

I agree. the math works ... the model does not. :D

[bike22]

the clock is ticking...

[bike22]

time to sell off all your stocks, the market will be crashing soon...

[MattTuck]

When is the official 40 day time period finished?

[54ny77]

Hmm, I guess I was thinking of something else... ;)

http://en.wikipedia.org/wiki/Chartism

[Louis]

When is the official 40 day time period finished?

Haven't you heard? They've tweaked the theory and it's now an 80 day period. Have to wait a little longer.

[bike22]

it's time.

[54ny77]

.....

[bike22]

i tried to warn you.

[zap]

........about what?

[Louis]

I predict that at some point in the future the stock market will be down by a large percentage.

First, it will go up, then it will go down. Then maybe up again. Depends on a number of factors.

[Ahneida Ride]

Technical market analysis works anecdotally but doesn't stand up well to serious academic analysis. I think it was Warren Buffett who said something about getting the same answer if the charts were held upside down...

and I've run numerous Monte Carlo simulations of various Stochastic
processes. and I don't think they emulate reality.

Look at Long Term Capital Management. ( all PhD's)

Didn't Warren take a big hit this year ?

Serious academic studies also gave us a private banking Cartel that
creates OUR $$ outa thin air and charges us interest on thin air.

Serious academic studies also avoid using the Method of Lines to solve
Black-Scholes.

Take a look a Jurik Research and look his recommended reading list.

:beer:

[Elefantino]

That last time I was on a trading floor, everyone looked like they were "High School Musical" audition rejects.

Perhaps reaching the upper levels of "Halo 2" is not the best preparation for dealing in complex financial matters.

[MattTuck]

It's back, fyi. (http://www.cnbc.com/id/100786428)

[cachagua]

When the market goes up, they call that -- the market went up.
When the market goes down, they call that a "correction".

I'm glad I know where I stand with those folks.

[downtube]

I went to the source of all my best market info, this is what I came up with:

http://wormholeriders.com/blog/wp-content/uploads/Fringe-S3x12-Outlook-not-so-good.jpg

[christian]

Oh, the huge manatee.

[slidey]

Having wasted the last 12 minutes of my life learning about this horse's ass of an indicator, I have only one Q: why is this even an indicator??!! :no:

Precision at play in the markets:
http://jsmineset.com/wp-content/uploads/2009/08/clip_image0014.gif

[Tony T]

Did it predict the Nikkei's 3,000 point drop? If so, I'll give it a look for the DOW

[MattTuck]

Having wasted the last 12 minutes of my life learning about this horse's ass of an indicator, I have only one Q: why is this even an indicator??!! :no:


It's back, fyi. (http://www.cnbc.com/id/100786428)

It's back. again. (http://www.cnbc.com/id/100955925)

[bthornt]

This book (written by the Princeton University economist Burton Malkiel) provides substantial empirical evidence concerning the failures of chartists.

Malkiel's primary recommendation is to buy broad based index funds and hold them. After taking into consideration the transactions costs associated with frequent buying and selling of individual stocks or the fees associated with mutual funds, you will do better with the buy and hold index fund strategy.

Incidentally, I'm not giving investment advice. I'm just reporting what the book says.

[MattTuck]

Head's up, we're on Hindenburg watch once again.

https://twitter.com/McClellanOsc/status/804527629030170624

[Louis]

Yell "The sky is falling!!!" often enough and eventually something will fall and hit you in the head.

[unterhausen]

so reading through this thread, it happened many times. Obviously, none of them spread detritus over the New Jersey countryside in a way that was at all permanent. But did anyone track if it was predictive at all?

[MattTuck]

so reading through this thread, it happened many times. Obviously, none of them spread detritus over the New Jersey countryside in a way that was at all permanent. But did anyone track if it was predictive at all?


Here you go.

[Tony T]

This time its different

https://images-na.ssl-images-amazon.com/images/I/51Cdo6BMwkL._SY344_BO1,204,203,200_.jpg