full article here
http://financialsense.com/fsu/editorials/m.../2006/0518.html
..."So what is a Hindenburg Omen? It is the alignment of several technical factors that measure the underlying condition of the stock market — specifically the NYSE — such that the probability that a stock market crash occurs is higher than normal, and the probability of a severe decline is quite high. This Omen has appeared before all of the stock market crashes, or panic events, of the past 21 years. All of them. No panic sell-off occurred over the past 21 years without the presence of a Hindenburg Omen. The way Peter Eliades put it in his Daily Update, September 21, 2005 (Peter is well worth the read, believe me), 「The rationale behind the indicator is that, under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows — but not both.」 When both new highs and new lows are large, 「it indicates the market is undergoing a period of extreme divergence — many stocks establishing new highs and many setting new lows as well. Such divergence is not usually conducive to future rising prices. A healthy market requires some semblance of internal uniformity, and it doesn』t matter what direction that uniformity takes. Many new highs and very few lows is obviously bullish, but so is a great many new lows accompanied by few or no new highs. This is the condition that leads to important market bottoms.」
..."Based upon the five parameters noted above, here』s what we found: Confirmed Hindenburg Omens are very rare. Including the confirmed Hindenburg Omen we have now, April 10th, 2006, and extended due to the April 17th signal, there were only 24 confirmed Hindenburg Omen signals over the past 21 years. This is amazing when you consider that during that time span, there were roughly 5,250 trading days. Of those 5,250 trading days where it was possible to generate a Hindenburg Omen, only 168 (3.2 percent) generated one, clustering into 24 confirmed stock market crash signals."
..."What does it mean for traders and investors when we get a confirmed Hindenburg Omen? This is really important to understand. A confirmed Hindenburg Omen is not a guarantee of a stock market crash. The odds of a crash based upon the history since 1985 is 26.1 percent. That means the odds we will not have a crash are quite high, at 73.9 percent. However, since a stock market crash is akin to economic death in many circles, you can look at the situation like this. If you were hearing from your doctor that the surgury you are contemplating stands a 26.1 percent of you dying, that becomes a very high percentage probability – one you likely do not want to take if the surgury is not absolutely necessary. A 26.1 percent probability of a stock market crash is extremely high when you consider that there have been only half a dozen over the past twenty years, and the normal odds of a crash happening randomly are only about one-tenth of one percent. You now also have to factor that the Fed is pumping liquidity to prevent crashes once these signals occur. So you do not want to go short the farm. You may want to think about taking prudent precautionary action according to your investment advisor given the much higher than normal odds of a crash. That may not mean shorting. It may mean increasing cash positions or hitting the sidelines for a while. Or it may mean a carefully constructed shorting strategy developed with your advisor, that limits lossses, and invests only the amount which you can afford to lose. Still, it is interesting that even with the heavy liquidity the Fed has been pumping around the time of the past two signals, the odds of a 5 percent decline or more remain pretty high at 73.8 percent. "
http://www.marketwatch.com/News/Story/Stor...D&siteid=google
IRWIN KELLNER
Half and half
Commentary: Investors are of two minds these days
E-mail | Print | | Disable live quotes By Dr. Irwin Kellner, MarketWatch
Last Update: 10:30 AM ET May 23, 2006
HEMPSTEAD, N.Y. (MarketWatch) -- The financial markets are divided into two camps: those who fear that the Federal Reserve will stop raising interest rates and those who worry that it won't.
Those who don't want the Fed to stop raising rates fear inflation; those who want the central bank to halt fear recession.
Both sides think their view is anathema for stocks. That's why the market has taken a header over the past two weeks.
Right now, the balance of power appears to be on the side of the inflation worriers. In recent weeks, the price data has surprised on the upside.
Headline inflation, as measured by the producer and the consumer price indexes, has been more than expected, while the "core," or underlying, rate of inflation has been creeping up as well.
Speaking of which, the markets are holding their breath until the release of the Fed's favorite measure of inflation, the core PCE index, scheduled to come out this Friday. See our Economic Forecast page.
Given what's been happening elsewhere, there's a good chance that this measure will inch up above the range that the Fed and its new chairman, Ben Bernanke, are said to be willing to tolerate.
If so, you can forget about the pause that refreshes -- at least come the end of June, when the central bank's interest-rate setting Open Market Committee holds its next confab.
What happens after that will be, in the words of the Fed, itself, data dependent. If the rate of inflation does not cool down, you can expect the Fed to raise rates again after its August meeting.
This would bring monetary policy deeply into restrictive territory, raising the odds of an overshoot.
However, to those whose main concern is recession, it may already be too late.
Almost obscured by the excitement over the resurgence of inflation is clear evidence that the economy is slowing -- and by more than you would expect, given the outsize gains in the first quarter's gross domestic product.
It's most visible in the housing sector. Sales of new and existing homes are down, inventories are up, and, not surprisingly, new-home construction is off as well.
Even more important is the fact that home prices are falling while interest rates are climbing. This is depriving many people of the ability to tap the equity built up in their homes to make up for the lack of growth in personal incomes because of lackluster job creation.
Putting on the squeeze is the jump in the cost of energy, food and health care, not to mention the Alternate Minimum Tax which has snared large numbers of unsuspecting taxpayers.
This is why retail sales have gone nowhere since the beginning of this year. Looking ahead, the recent flattening of the leading indicators suggests more of the same.
If the Fed keeps hiking rates, those who are worried about a new recession may soon find they hold the upper hand. As for the stock market, a trading range is the best you can expect.
Don't ask about the worst.
Dr. Irwin Kellner is chief economist for MarketWatch. He also is the Weller professor of economics at Hofstra University and chief economist for North Fork Bank.
IRWIN KELLNER
Half and half
Commentary: Investors are of two minds these days
E-mail | Print | | Disable live quotes By Dr. Irwin Kellner, MarketWatch
Last Update: 10:30 AM ET May 23, 2006
HEMPSTEAD, N.Y. (MarketWatch) -- The financial markets are divided into two camps: those who fear that the Federal Reserve will stop raising interest rates and those who worry that it won't.
Those who don't want the Fed to stop raising rates fear inflation; those who want the central bank to halt fear recession.
Both sides think their view is anathema for stocks. That's why the market has taken a header over the past two weeks.
Right now, the balance of power appears to be on the side of the inflation worriers. In recent weeks, the price data has surprised on the upside.
Headline inflation, as measured by the producer and the consumer price indexes, has been more than expected, while the "core," or underlying, rate of inflation has been creeping up as well.
Speaking of which, the markets are holding their breath until the release of the Fed's favorite measure of inflation, the core PCE index, scheduled to come out this Friday. See our Economic Forecast page.
Given what's been happening elsewhere, there's a good chance that this measure will inch up above the range that the Fed and its new chairman, Ben Bernanke, are said to be willing to tolerate.
If so, you can forget about the pause that refreshes -- at least come the end of June, when the central bank's interest-rate setting Open Market Committee holds its next confab.
What happens after that will be, in the words of the Fed, itself, data dependent. If the rate of inflation does not cool down, you can expect the Fed to raise rates again after its August meeting.
This would bring monetary policy deeply into restrictive territory, raising the odds of an overshoot.
However, to those whose main concern is recession, it may already be too late.
Almost obscured by the excitement over the resurgence of inflation is clear evidence that the economy is slowing -- and by more than you would expect, given the outsize gains in the first quarter's gross domestic product.
It's most visible in the housing sector. Sales of new and existing homes are down, inventories are up, and, not surprisingly, new-home construction is off as well.
Even more important is the fact that home prices are falling while interest rates are climbing. This is depriving many people of the ability to tap the equity built up in their homes to make up for the lack of growth in personal incomes because of lackluster job creation.
Putting on the squeeze is the jump in the cost of energy, food and health care, not to mention the Alternate Minimum Tax which has snared large numbers of unsuspecting taxpayers.
This is why retail sales have gone nowhere since the beginning of this year. Looking ahead, the recent flattening of the leading indicators suggests more of the same.
If the Fed keeps hiking rates, those who are worried about a new recession may soon find they hold the upper hand. As for the stock market, a trading range is the best you can expect.
Don't ask about the worst.
Dr. Irwin Kellner is chief economist for MarketWatch. He also is the Weller professor of economics at Hofstra University and chief economist for North Fork Bank.
http://www.marketwatch.com/News/Story/Stor...id=google&dist=
Chinese Version: http://www.moneyq.org/index.php?showtopic=2533
TOMI KILGORE'S MARKET MAP
The going is getting tough
Commentary: Nasdaq is starting to feel the longer-term pain
E-mail | Print | | Disable live quotes By Tomi Kilgore, MarketWatch
Last Update: 6:05 PM ET May 22, 2006
NEW YORK (MarketWatch) -- When the going gets tough, it's each market for itself.
Ever since May 10, when the Federal Reserve's policy setting committee left its intentions for interest rates unclear, the major equity market indexes have been in a tailspin.
Things got a bit worse after a second-straight month of higher-than-expected core consumer inflation data.
But it hasn't been just stocks. Gold and other metals prices tumbled, crude and gasoline futures slid, bonds yields fell and the dollar rallied. All the established trends in the major asset classes corrected.
Is this supposed to be the reaction of a market afraid of higher rates and inflation, or just plain afraid?
Financial markets that had come so far so fast, and that had become so accustomed to knowing their near-term future, weren't prepared for uncertainty.
Fed funds futures had regularly been pricing in 100% chances of rate hikes following upcoming Fed meetings, but since May 10 the odds have been much closer to 50%. And uncertainty breeds contempt in the financial markets.
On Monday, the July contract was pricing in a 56% chance of a quarter-percentage point rate hike at the Fed's next meeting in late June.
"I don't throw darts at a board," said Gordon Gekko of "Wall Street" fame. "I bet on sure things."
When the going gets tough, the tag-along trend followers get nervous, and are quick to jump off the bandwagon.
The core positions, the ones that have a longer-term stake in the previous trends, remain intact. If the corrections keep going, however, then even those in it from the beginning have to start making some tough decisions -- keep riding it out, or start cutting back.
One of the problems is that since the Fed's next rate move is uncertain, the markets have moved their focus farther out; they are now more worried about the effect of rising interest rates and inflation is on economic growth.
That's how crude and gold could go down when inflation is still a concern, why stocks can slide despite strong earnings and bonds can rally while yields fall (the dollar's gains could be explained by rising rates and demand from rising bonds).
If the markets don't catch their breath soon, the stock market will start to view all economic data as bad -- strong data will suggest further rate hikes, and a hard landing for the economy, while weak data will suggest the Fed has already gone too far. This type of perfect storm sounds a bit too familiar. Read previous column.
The Dow industrials and S&P 500 Index still have some room before stirring up this type of trouble. But the going for the Nasdaq Composite has already gotten tough.
The Nasdaq's going gets tough
Downside corrections can be healthy, because they can clear out the short-term long positions that are slowing upside progress by sitting on the offer side of the market.
But corrections can quickly turn unhealthy if they go too far, as what started out as an annoyance to long-term bulls starts noticeably cutting into profits. Their reasons for buying into the market may be unchanged, but the pain has to be treated.
"I don't like losses, sport," Gekko said. "Nothing ruins my day more than losses."
The Nasdaq ($COMPQ : Nasdaq Composite Index
News , chart, profile, more
Last: 2,158.76-14.10-0.65%
$COMPQ2,158.76, -14.10, -0.6%) fell 21 points to 2,172 on Monday, and has fallen below its 200-day simple moving average (currently at around 2,232), which is seen by many as a bull vs. bear market barometer.
The index has been below the 200-day SMA before, in October and in April 2005, and the uptrend resumed shortly after, but trading around that line last week suggests it was important enough for bulls to take notice.
Just prior to the breakdown, the 200-day had acted as support for the index on May 15 and May 16. The downside gap through the line on May 17, in which the intraday high failed to overlap with the prior session's low, suggests a frenzied sell-off; if the 200-day wasn't important, there would be no need to panic.
But even more discomforting is that the Nasdaq has dipped below a monthly trendline that started at the October 2002 bear market low of 1,108.49, and connects the March 2003 low of 1,253.22, the April 2005 low of 1,889.83, the May 2005 low of 1,916.03 and the October 2005 low of 2,025.58.
A monthly close below around 2,200, which is where the extrapolated uptrend line comes in for May, would warn that the 3 1/2-year old bull market had ended, and could trigger the closing of some longer-term positions.
Some other levels to watch on the downside include near-term support at the gap in the charts between Nov. 2 high of 2,144.56 and the Nov. 3 low of 2,153.20, followed by the Oct. 13 low of 2,025.58.
Below that, it gets ugly. There's the April 2005 low of 1,889.83, which roughly coincides with the 38.2% Fibonacci retracement target of the move from the October 2002 low to the April 2006 multi-year high of 2,375.54, which comes in at 1,891.53. Read more about Fibonacci retracements.
Downtrends don't start with a decline. They start after a pattern of failure in breaching resistance levels, and disappointment over the inability to make higher highs.
Levels to watch on the upside are the 200-day, currently around 2,232, followed by the gap in the charts between the May 11 low of 2,270.51 and the May 12 high of 2,264.19.
Above that is the 2,300 level, which coincides with prior support defined by the lows of April 17 (2,299.42) and May 3 (2,295.03), and then the May 8 high of 2,352.56.
If the current sell-off is real, and just beginning, don't expect much joy above the 200-day.
Chinese Version: http://www.moneyq.org/index.php?showtopic=2533
TOMI KILGORE'S MARKET MAP
The going is getting tough
Commentary: Nasdaq is starting to feel the longer-term pain
E-mail | Print | | Disable live quotes By Tomi Kilgore, MarketWatch
Last Update: 6:05 PM ET May 22, 2006
NEW YORK (MarketWatch) -- When the going gets tough, it's each market for itself.
Ever since May 10, when the Federal Reserve's policy setting committee left its intentions for interest rates unclear, the major equity market indexes have been in a tailspin.
Things got a bit worse after a second-straight month of higher-than-expected core consumer inflation data.
But it hasn't been just stocks. Gold and other metals prices tumbled, crude and gasoline futures slid, bonds yields fell and the dollar rallied. All the established trends in the major asset classes corrected.
Is this supposed to be the reaction of a market afraid of higher rates and inflation, or just plain afraid?
Financial markets that had come so far so fast, and that had become so accustomed to knowing their near-term future, weren't prepared for uncertainty.
Fed funds futures had regularly been pricing in 100% chances of rate hikes following upcoming Fed meetings, but since May 10 the odds have been much closer to 50%. And uncertainty breeds contempt in the financial markets.
On Monday, the July contract was pricing in a 56% chance of a quarter-percentage point rate hike at the Fed's next meeting in late June.
"I don't throw darts at a board," said Gordon Gekko of "Wall Street" fame. "I bet on sure things."
When the going gets tough, the tag-along trend followers get nervous, and are quick to jump off the bandwagon.
The core positions, the ones that have a longer-term stake in the previous trends, remain intact. If the corrections keep going, however, then even those in it from the beginning have to start making some tough decisions -- keep riding it out, or start cutting back.
One of the problems is that since the Fed's next rate move is uncertain, the markets have moved their focus farther out; they are now more worried about the effect of rising interest rates and inflation is on economic growth.
That's how crude and gold could go down when inflation is still a concern, why stocks can slide despite strong earnings and bonds can rally while yields fall (the dollar's gains could be explained by rising rates and demand from rising bonds).
If the markets don't catch their breath soon, the stock market will start to view all economic data as bad -- strong data will suggest further rate hikes, and a hard landing for the economy, while weak data will suggest the Fed has already gone too far. This type of perfect storm sounds a bit too familiar. Read previous column.
The Dow industrials and S&P 500 Index still have some room before stirring up this type of trouble. But the going for the Nasdaq Composite has already gotten tough.
The Nasdaq's going gets tough
Downside corrections can be healthy, because they can clear out the short-term long positions that are slowing upside progress by sitting on the offer side of the market.
But corrections can quickly turn unhealthy if they go too far, as what started out as an annoyance to long-term bulls starts noticeably cutting into profits. Their reasons for buying into the market may be unchanged, but the pain has to be treated.
"I don't like losses, sport," Gekko said. "Nothing ruins my day more than losses."
The Nasdaq ($COMPQ : Nasdaq Composite Index
News , chart, profile, more
Last: 2,158.76-14.10-0.65%
$COMPQ2,158.76, -14.10, -0.6%) fell 21 points to 2,172 on Monday, and has fallen below its 200-day simple moving average (currently at around 2,232), which is seen by many as a bull vs. bear market barometer.
The index has been below the 200-day SMA before, in October and in April 2005, and the uptrend resumed shortly after, but trading around that line last week suggests it was important enough for bulls to take notice.
Just prior to the breakdown, the 200-day had acted as support for the index on May 15 and May 16. The downside gap through the line on May 17, in which the intraday high failed to overlap with the prior session's low, suggests a frenzied sell-off; if the 200-day wasn't important, there would be no need to panic.
But even more discomforting is that the Nasdaq has dipped below a monthly trendline that started at the October 2002 bear market low of 1,108.49, and connects the March 2003 low of 1,253.22, the April 2005 low of 1,889.83, the May 2005 low of 1,916.03 and the October 2005 low of 2,025.58.
A monthly close below around 2,200, which is where the extrapolated uptrend line comes in for May, would warn that the 3 1/2-year old bull market had ended, and could trigger the closing of some longer-term positions.
Some other levels to watch on the downside include near-term support at the gap in the charts between Nov. 2 high of 2,144.56 and the Nov. 3 low of 2,153.20, followed by the Oct. 13 low of 2,025.58.
Below that, it gets ugly. There's the April 2005 low of 1,889.83, which roughly coincides with the 38.2% Fibonacci retracement target of the move from the October 2002 low to the April 2006 multi-year high of 2,375.54, which comes in at 1,891.53. Read more about Fibonacci retracements.
Downtrends don't start with a decline. They start after a pattern of failure in breaching resistance levels, and disappointment over the inability to make higher highs.
Levels to watch on the upside are the 200-day, currently around 2,232, followed by the gap in the charts between the May 11 low of 2,270.51 and the May 12 high of 2,264.19.
Above that is the 2,300 level, which coincides with prior support defined by the lows of April 17 (2,299.42) and May 3 (2,295.03), and then the May 8 high of 2,352.56.
If the current sell-off is real, and just beginning, don't expect much joy above the 200-day.
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