Yesterday, the Hindenburg Omen was triggered. It's a technical signal indicating a major divergence between the number of stocks at or near new highs v.s. the number of stocks making new lows. The Hindenburg Omen has preceded every major crash of the past 30 years, with only a couple of situations where it didn't trigger or triggered a false positive. In other words it's a necessary but not sufficient condition for a market 'event'. I view it as the sign of an unhealthy market in which fewer and fewer stocks are holding up the market, until eventually there is no place left to hide. (Bob Lang on RM.com indicated the signal was fired, although I have not been able to confirm by another source).
Meanwhile, Zerohedge, noted today that the current market chart pattern is an identical fractal of the 1987 market, immediately prior to that crash. As you may recall, this was the 25th anniversary of that crash, which I wrote about here. As indicated, there are many similarities between then and now, beyond just the chart pattern.
Overall, anecdotally, I find market sentiment to be substantially sanguine, with still no one pounding the table saying get the hell out of stocks. The VIX (below) which I have shown many times, has barely budged, although it is above the downtrend line. To me this means that Wall Street is still buying the dip even as the market is now going vertical down. Given that hedge funds are massively underperforming and with margin leverage at a 16 month high, they have extreme incentive to ignore risk.
Another interesting factor is the daily bludgeoning of Apple which I assume is no longer the most valuable stock by market cap. The stock has lost 20% of value so far, which is a cool $150 billion. And as the chart below shows, it's not just going down, it's crashing. The vastly overhyped excitement surrounding iPhoney5 conned copious fools into thinking the stock was heading to 1000, only to reverse hard down into oblivion. Considering that Apple is the number one hedge fund holding and still one of the most valuable companies in the world - over-weighted in all major indices - it's continued vertical descent weighs heavily on the market.
The other factor I mentioned yesterday is tax selling. I must have heard five Wall Streeters since yesterday say we don't know what taxes will be next year, but we know they will be higher. That will be a major factor in the increased downside volumes and a weight on the market through year end.
Spanish bond yields also had their biggest rise in several months, reversing their downtrend. Once again, Rajoy turned down bailout assistance and one can only wonder if he won't wait until it's one day too late. In other words, on the other side of another market event, I doubt there will be much appetite to bailout an intransigent country that chose to extend and pretend at the expense of the rest of Europe.
In summary, I don't think that any one of these factors is enough to cause a major event, however taken together they point to a potentially lethal confluence of factors. In addition, my earlier post regarding the nascent return of deflation is another major factor. Ultimately, the action in the dollar will be the deciding arbiter as to whether all of Wall Street's treats and delights are taken away prior to year-end, bonus time.
The market: The rising wedge is breaking down. Another day below the trend line - approaching the rubicon
The VIX (Options fear gauge): Coiling
Apple: #1 Hedge Fund holding. No Comment:
