Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019

Stock-Markets / Stock Markets 2018 Sep 15, 2018 - 09:09 AM GMT

By: Troy_Bombardia

Stock-Markets

Our Long Term Risk Model suggests that the U.S. economy & bull market are almost at the point at which “things can’t get much better”, but we’re not completely there yet.


The stock market should be fine throughout the rest of 2018, but we are getting more and more signs that the stock market will make a major top in 2019.

Consumer Confidence

The Confidence Board’s latest Consumer Confidence reading demonstrates that consumers are extremely optimistic right now.

The last time consumers became this confident was in December 1997. The U.S. stock market (S&P 500) began a “big correction” less than 7 months later in July 1998.

This suggests that the U.S. stock market will make a major top in 2019: either a “big correction” or the start of a bear market. The Medium-Long Term Model suggests that the next major top will be a bear market start instead of a “big correction”.

Hindenburg Omen

The Hindenburg Omen is essentially a breadth indicator. It measures diverging breadth during a stock market rally.

Conventional trading wisdom is based on the idea that when the stock market is going up, most stocks should be making 52 week highs together. The Hindenburg Omen notes that a problem is brewing under the rally because A LOT of stocks are making 52 week highs (going up) while A LOT of stocks are making 52 week lows (going down) at the same time. In other words, breadth is diverging.

There’s a Hindenburg Omen for the NYSE and a Hindenburg Omen for the NASDAQ. Over the past 6 trading days, there have been a combined 8 Hindenburg Omen signals (from NYSE and NASDAQ).

This is extremely rare and has only happened 3 times in history:

  1. September 11 2018 (current case)
  2. December 10 2014
  3. December 16 1999
  4. July 6 1990

In all of these 6 historical cases, the S&P 500 began a “big correction” or bear market within the next 6 months.

Here are the cases in detail

December 10 2014

The S&P began a “big correction” 6 months later.

December 16 1999

The S&P made a bull market top 4-10 months later (flat top from March-September 2000)

July 6 1990

The S&P immediately began a “big correction”.

As you can see, this Hindenburg Omen seems like a bearish sign for the stock market. Either a bear market or “big correction” begins within the next 6 months.

However, a part of me wonders how useful the Hindenburg Omen is.

Why are “many stocks” in the NYSE making 52 week highs while “many stocks” make 52 week lows right now?

It’s because the NYSE doesn’t just represent American stocks: there are a lot of foreign listed stocks on the NYSE. Foreign stocks have cratered this year while the U.S. stock market is rallying. Hence, the Hindenburg Omen doesn’t represent diverging breadth in U.S. stocks. It represents the divergence between U.S. stocks and foreign (e.g. emerging market) stocks.

This is also why the NYSE Composite – a composite covering all the commonly traded stocks on the NYSE – has lagged the S&P 500 significantly. 55 of the 100 largest stocks in the NYSE are foreign (non-U.S.) stocks.

So in reality, the Hindenburg Omen isn’t necessarily saying that there’s a big breadth divergence in the U.S. stock market. It’s saying that there’s a big divergence in the NYSE: one component which are U.S. stocks and one component which are foreign stocks.

Conclusion

We’re starting to get more signs (here and here) that the stock market will make a major top in 2019. It’s too early to turn bearish right now, but be careful next year.

Click here for more market studies.

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in