Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
With Weaker Climate Consensus, Expect Elevated Climate Change - 16th Dec 18
SMIGGLE Advent Calendar 2018 UK Contents - What You Get Look Inside Review - 16th Dec 18
Is there a Lump of Coal in Santa's Stock Market Bag? - 16th Dec 18
This Market Will Drive Gold in 2019… - 16th Dec 18
Gerald Celente:Central Banks Can’t Stop a 2019 Debt Disaster - 16th Dec 18
Gold Stocks Triple Breakout - 15th Dec 18
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

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.


© 2005-2018 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

6 Critical Money Making Rules