Tuesday, June 4, 2013

The Hindenburg Omen... Accurate? Superstitious?

Have read about the Hindenburg Omen on NanYang Siang Pau yesterday and this is a close look up on the "sign". This is an article taken from the http://www.marketwatch.com/

And the reason it’s been getting so much chatter lately is that the stars have already aligned, just as they did in October 2007.
But exactly what are the signs of the Hindenburg Omen? Well, a series of market breadth indicators need to occur twice within 36 trading days of each other to portend a serious market decline within the next 40 days.

  • Both the daily number of 52-week highs and 52-week lows on the New York Stock Exchange are equal or greater than 2.2% of NYSE stocks that day.
  • The 10-week (or 50-day) moving average is rising.
  • The McClellan Oscillator, a measure of market breadth based on exponential moving averages of advancing and declining stocks, must be negative, or bearish.
  • New 52-week highs are not more than twice the number of 52-week lows.

All four of those conditions were met on April 15 and May 29, according to Jonathan Krinsky, chief technical market analyst at Miller Tabak & Co. On April 15, there were 70 new 52-week highs and 77 new 52-week lows, exceeding 2.2% of issues, while on May 29th there were 58 new 52-week highs and 104 new 52-week lows.
“According to Bloomberg, the last ‘confirmed’ omen was in October 2007,” Krinsky wrote in a recent note. “It makes some sense given the dispersion between new 52 week highs and lows. Therefore, it is always good to be aware of it, even if it proves to be nothing more than a silly topic to bring up at your next cocktail party.”
The Hindenburg Omen (HO), however, has garnered a fair amount of savagecriticism. While the HO preceded market downturns in 2008 and 1987, critics point out that stock market declines occurred only 25% of the time after conditions of the HO were met.
Chief Investment Officer Adam Grimes at Waverly Advisors called the HO “an example of the worst kind of ‘technical analysis’—a market signal essentially designed for media soundbites,” in emailed comment Monday.
“This signal was created in a different market environment, and we might reasonably ask if the NYSE, which represents roughly 10% of the total U.S. market, is actually the best representation today,” Grimes said.
Still, the creator of the HO, Jim Miekka, told WSJ’s MoneyBeat blog he’s preparing to bail out of the market. Then again, Miekka also said much the same thing in mid-August 2010, when the S&P 500 Index SPX +0.59% was around 1,079. By the end of the month, the S&P 500 had slipped nearly 4% to 1,040. It followed that up by rising 30%  to 1,347 over the next 11 months.

According to Wikipedia,
From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77% [The Wall Street Journal 8/23/2010 article cited below states that accuracy is 25%, looking at period from 1985], and usually takes place within the next forty days. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines.
Because of the specific and seemingly random nature of the Hindenburg Omen criteria, the phenomenon may be simply a case of overfitting. That is, by backtesting through a large data set with many different variables, correlations can be found that do not really have predictive significance. The Omen is at best an imperfect technical indicator that is a work in progress.

As what we can see here, you gotta clean your position within this forty days. But will this get our Bursa Malaysia affected? I think its likely as the foreign funds are the net seller right now. On the other hand, this correction gonna be the best time for us to accumulate good fundamental stocks again. 

Another reason for Selling in MAY and go AWAY... 
p/s: It's still not too late to sell now... 

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