maandag 26 juni 2017

Hindenburg Omen Reappears As Main Market Supports Get Kicked Away

In the last week, the controversial Hindenburg Omen has started to cluster ominously once again... 


Combined with divergent market internals and rates off the zero-bound (and global central bank balance sheets actually shrinking), John Hussman warns of the rising likelihood of an interim market loss on the order of 50-60% over the completion of the current cycle...


With market internals unfavorable and interest rates off the zero bound, the two main supports that made the half-cycle since 2009 “different” have been kicked away. We expect the dynamics of this market cycle to resemble other periods when offensive valuations and extreme overvalued, overbought, overbullish syndromes were joined by deteriorating market internals (particularly when interest rates were off their lows). Short term market outcomes are anybody’s guess, but across history, that overall combination has typically defined crash dynamics.
Notably, we’ve observed a widening of internal dispersion in recent weeks. For example, weekly NYSE new lows have averaged about 4% of traded issues recently, with nearly 6% last week, even with the S&P 500 near record highs. Meanwhile, nearly 40% of stocks are already below their 200-day averages. Raw “Hindenburg Omens” (days when both NYSE new highs and new lows exceed about 2.5% of traded issues) are typically not ominous at all. The exception is where they are accompanied by a broader syndrome of tepid market breadth even with the major indices still elevated, when multiple signals appear in close succession, and when market internals are unfavorable on our own measures. On that note, we’ve observed 4 such daily signals in recent weeks, with two last week alone. We saw similar widening of internal dispersion in December 1999, July and November 2007, and July-August 2015.
*) Finally, we note that two things are different than the last time the market flashed numerous 'failed' Hindenburg Omens:
1) as the chart above shows, The Fed is no longer printing money ad nauseum like it was during QE3 (and in fact is heading towards unwinding its own balance sheet), and
2) the global central bank balance sheet has actually begun to shrink, the most since December, in the last 8 days...