Stock Strategies the Hindenburg Omen

Stock Strategies

The Hindenburg Omen reflects the number of securities at 52-week lows versus 52-week highs. A few blogs mentioned it occurring a couple of times in December, 2013 and January, 2014. The idea is that this shortly precedes a market collapse -- we're still waiting. The Zweig Thrust is a measure of market momentum. It is calculated by determining the percentage of issues on the NYSE that are advancing, in 10-day moving average form, such that if it moves from 40% to 61.5% in any 10 day period that is the start of a potential new bull market. The current advancer/issues ratio is 42.7% for the NYSE, so there is quite a ways to go before the Zweig Thrust has occurred -- it has not occurred for a while.

The idea behind the Sotheby's indicator is that it is a technical indicator serving as a proxy for "what the 1%ers are buying." It is simply the Sotheby's stock, and if that appears to be peaking -- obviously this one works better in hindsight. A quick look at Sothebys' chart tells me that the stock is on the decline, so the market is not in a bubble. The Coppock Indicator is a long-term price momentum indicator. It is the 10-month moving average sum of the 14-month rate of change and the 11-month rate of change. The Coppock Indicator is presently showing likelihood of a downward trend in the markets (McClellan, 2014) though moves upward the past couple of months hint that the February down indicator may not have held. The Relative Strength Indicator compares recent gains to recent losses to determine if an asset is overbought or oversold. When RSI >70, it is overbought, and RSI

The Rate of Change Indicator is measures the percentage change between the most recent stock price and the price in the past. The choice of n is important with this indicator. The 12-day ROC is common; for the NYSE this is 1.006, so not much change at all. If there is a short-term cycle at work, it is not a strong one. The Golden Cross is when a security's short-term moving average breaks through its long-term moving average. This would indicate a bull market on the horizon. Right now the 15-day moving average is 16491 and the 50-day moving average is 16370. The 100-day moving average is 16250, so unlike many of the other indicators, the Golden Cross indicates a bull market.

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The graph tells me little, actually. It's better to regress these numbers to understand the nature of the correlation than to play the guessing game with a graph that covers the last forty years. The graph does tell me, however, that the growth rate of M1 does not correlate much with recessions. There are two major growths in M1 (in 2011 and in the mid-80s) that had no link to recession. There are also three that were linked, and in each there was a runup in M1 prior to the recession's onset. The problem for me is that 3/5 isn't a reliable predictor. The other thing we know is that the Fed usually sets M1 reactively to market conditions -- that might explain the lack of reliability here because the Fed sometimes can bring out certain market conditions (like no recession right now because M1 is very high) and sometimes it is reactionary, using expansionary monetary policy to respond to recessions.