[Original Post: May 31st, 2013]
The last signal was given back on April 15th when the market dumped hard and saw several days of distribution in a row. Of course the market recovered and ploughed higher to new recovery highs.
The key takeaway from this signal is that it indicates a bifurcated market. One in which many stocks are making new highs, but many other stocks are making new lows. EWI (via InvestorsIntelligence) indicated that last week, after the Fed meeting, there were 864 buying climaxes i.e. stocks making new highs and then reversing lower on the week. That was the highest total since April 2010 which preceded the "Flash Crash" and a 17% decline in the overall market. So in other words the buying climaxes from last week likely contributed to the Hindenburg Omen this week - as many stocks have already rolled over and fewer are left holding up the market.
Stalling at 1666 (.SPX):
This is the third cluster of distribution in this cycle, as seen below. Distribution is a sign that large institutions are taking advantage of heavy volume to sell down their positions. Distribution is commonly seen at tops and therefore it's a testament to the strength of this market that there were two prior bouts of heavy selling and yet the market went on to new highs, each time. In this current region (1666 on the .SPX), there have been five days of distribution already, so the question at hand is whether or not the bulls can mount yet another Houdini escape from this latest stall point. You know what I think....
Municipal Bonds
There was major damage across the board - I can't find one sector that was spared. The main chart that jumps out though is in municipal bonds, which like junk bonds were sold hard today:
Utility Stocks
Utilities are down 11% in just two weeks. These are stocks typically owned by the most risk averse investors for their steady dividends. That price move equates to four years of dividend yield...
Lumber (Futures)
Another big dislocation has been in Lumber. Down 30% off the highs and it was limit down several times this week. Not saying much about the new "housing recovery":
Nikkei (Japan) Stock Index
And it seems like it was just a few days ago we were talking about the Nikkei going parabolic, yet it's already down 14% off the highs, and closed only slightly above the lows of the week:
U.S 20+ year Treasury (ETF)
Lastly, long-term Treasuries were sold hard today, but then had a massive late day recovery closing almost even. This is not technically a "hammer" (bullish reversal) formation, since the close is lower than the open, but considering the day's range, it's close enough for me. Once again, Treasuries are looking to be the only safe haven (for now). As always, I recommend short-term treasuries over long-term, for reduced volatility (full disclosure: long s/t Treasuries):
INVEST AT YOUR OWN RISK
The last signal was given back on April 15th when the market dumped hard and saw several days of distribution in a row. Of course the market recovered and ploughed higher to new recovery highs.
The key takeaway from this signal is that it indicates a bifurcated market. One in which many stocks are making new highs, but many other stocks are making new lows. EWI (via InvestorsIntelligence) indicated that last week, after the Fed meeting, there were 864 buying climaxes i.e. stocks making new highs and then reversing lower on the week. That was the highest total since April 2010 which preceded the "Flash Crash" and a 17% decline in the overall market. So in other words the buying climaxes from last week likely contributed to the Hindenburg Omen this week - as many stocks have already rolled over and fewer are left holding up the market.
Stalling at 1666 (.SPX):
This is the third cluster of distribution in this cycle, as seen below. Distribution is a sign that large institutions are taking advantage of heavy volume to sell down their positions. Distribution is commonly seen at tops and therefore it's a testament to the strength of this market that there were two prior bouts of heavy selling and yet the market went on to new highs, each time. In this current region (1666 on the .SPX), there have been five days of distribution already, so the question at hand is whether or not the bulls can mount yet another Houdini escape from this latest stall point. You know what I think....
Municipal Bonds
There was major damage across the board - I can't find one sector that was spared. The main chart that jumps out though is in municipal bonds, which like junk bonds were sold hard today:
Utility Stocks
Utilities are down 11% in just two weeks. These are stocks typically owned by the most risk averse investors for their steady dividends. That price move equates to four years of dividend yield...
Lumber (Futures)
Another big dislocation has been in Lumber. Down 30% off the highs and it was limit down several times this week. Not saying much about the new "housing recovery":
Nikkei (Japan) Stock Index
And it seems like it was just a few days ago we were talking about the Nikkei going parabolic, yet it's already down 14% off the highs, and closed only slightly above the lows of the week:
U.S 20+ year Treasury (ETF)
Lastly, long-term Treasuries were sold hard today, but then had a massive late day recovery closing almost even. This is not technically a "hammer" (bullish reversal) formation, since the close is lower than the open, but considering the day's range, it's close enough for me. Once again, Treasuries are looking to be the only safe haven (for now). As always, I recommend short-term treasuries over long-term, for reduced volatility (full disclosure: long s/t Treasuries):
INVEST AT YOUR OWN RISK
