TUES. AUG. 17- The Hindenburg Omen

Something that has made the rounds on Wall Street lately is talk of the Hindenburg Omen. The Hindenburg disaster as most history buffs know took place in 1937 when the German passenger ship (Hindenburg) caught fire and burst into flame. Thus, perhaps it is apt if not a little dark for one of the more feared technical stock market patterns to be named after the disaster. The five main criteria for the omen, as quoted from a piece from the website www.zerohedge.com on Aug. 12 are:

1. That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.
2. That the smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.
3. That the NYSE 10 Week moving average is rising.
4. That the McClellan Oscillator is negative on that same day.
5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.
In June 2008, there was a confirmation of this signal and we all know what happened at that time. On Thursday (Aug. 12), the market action on the NYSE officially trigged this omen. Basically, the logic behind it is that inconsistencies in the markets such as a rising 10 week moving average yet more new annual lows are present stock-wise than 52- week highs, a greater risk exists that there is a state of confusion which can cause players to exit and stock prices to tumble. Here’s the thing: the indicator has a decent track record. It signaled itself several times in 2008 and has occurred prior to every major downdraft in the markets since 1985. Furthermore, according to http://www.thestreet.com/story/10835851/2/hindenburg-omen-is-a-stock-market-crash-imminent.html -
“The average return of the S&P 500 three months after the Omen is triggered is a loss of 2.6%, and the market was positive only 29% of the time.” Furthermore, “The probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, according to historical data quoted on Benzinga. It usually takes place within 40 days of the first Hindenburg event. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%.”

So here’s the thing: there’s a 76% shot that the market will not crash. I agree- 24% is a very significant minority of the time. But the more people talked about things like the Death Cross concept a few weeks ago, the more that markets were likely not to act accordingly. Same here. Now, don’t get me wrong- there are many other reasons that this can become ostensibly self-fulfilling even if the odds don’t favor it. But as more and more people talk about it, we as day traders should be familiar with and understand the concept of the ominous Hindenburg Omen even if many other signs point to this being but mere fodder for discussion.

Markets in Asia were lightly mixed overnight with Hong Kong up 0.1% and Tokyo down 0.4%. In Europe, the trend shifted with bourses up a little on either side of 1%. Gold is flat, oil is up 1%, the dollar is relatively flat, and bonds are down a tinge. Futures are up sharply on a continued burst of takeover activity. Today’s main topic is POT and it’s unsolicited $130/share bid by BHP. The markets are due for a bit of a bounce and did not sell off yesterday when given a shot to do so thus look for the bounce to maintain and feed upon itself a little today. The pace of trading will be notably busier than yesterday with a focus in the fertilizer sector, the earnings that came out, and selected big cap techs such as RIMM.

Reiterating-

If the whole story is not there -

If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.

If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-


Good- The following stocks have good news and/or a strong technical pattern

IOC- decent earnings

A-decent earnings

RINO- decent earnings

URBN- decent earnings

NFLX- closed near a high

OC- featured on “Mad Money” last night

HD- decent earnings

WMT- decent earnings

POT- received unsolicited takeover bid for 130 from BHP; the company said the bid was grossly low. Sympathy plays include MON, AGU, MOS, CF, IPI, ADM

PTV- subject of takeover rumors


Bad-The following stocks have bad news and/or a weak technical pattern

CATM- share offering

MNKD- share offering

TOO- share offering

PWRD- poor earnings

RIMM- closed near a low

MHS- closed near a low after announcing an acquisition

STRA, ESI, DV, LINC, CECO- closed near their lows in a weak education sector

THOR- closed near a low

LLY- halted phase III studies of Semagacestat

ANF- poor earnings


Earnings:

TUES AUG 17 BEFORE

ANF HD SKS

TJX WMT

TUES AUG 17 AFTER

ADI LFT LZB




Epiphany Trading, LLC
www.epiphanytrading.com

Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner