A Third Hindenburg Omen Confirmation?

If I said today was a terrible day in the markets that would be a clear understatement.  Even with almost everyone knowing that housing numbers would be well below expectations, it still seemed to come as a surprise as the markets fell at the open and fell further when the troubling figures were released around 10am Eastern.

As soon as we touched the lows of the day, we saw the bulls make an early morning bounce attempt to work towards even on the day.  Not only did that attempt fail but we trended further south the rest of the day and had a heavy volume sell-off in the final hour that made Tuesday even uglier.  Had the bulls at least been able to show some late day strength into the close, we’d all feel a lot more comfortable for Wednesday but, that optimism has been thrown out the window.

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The good news is we don’t seem to have any economic indicators on Wednesday that should be troubling other than the anticipation of Thursday’s poor claims figures and Friday’s even worse GDP revision lower.  That leaves me some glimmer of hope that Wednesday should show some intraday strength to sell into and reduce risk but, it is never good when we turn to “hope” as our reasoning.  However, due to the expected bad news on Thursday/Friday, I would not be surprised if we had intraday strength on Wednesday and a sell-off to finish the day.  This may help us price in the anticipated bad news so we see some positive action the rest of the week.  That’s my attempt to put a positive spin on the bad action.

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Technically speaking, the S&P 500 broke support around 1057 (see the red support lines on the chart below) and now our next true support is the February, May, and June lows around 1038.  The concern is we already broke that support in July when we touched our lows of the year so, the support may not be too strong anymore.  Doug Kass continues to believe we are in a trading range and will not go below our July lows nor will be go higher than our yearly highs.  So after today, do you still feel we are in just a trading range or is this sell-off really gaining steam towards a double-dip recession?

I felt more comfortable that Doug Kass was adding to his longs today as he has been one of the most accurate analysts in this current market but, I have been fearful all year of a late year sell-off.  The seasonally slow time in the markets makes it that much easier for high frequency trading to take us lower and if you look around, you’ll also find many stocks and commodities with heavy put options this quarter.  Neither is helpful to the bulls.

Now, the recent talk is today was another Hindenburg Omen confirmation.  That now makes three confirmations and if my research is correct, that means the accuracy of a market correction and/or collapse is much more likely than not.  Even if you don’t buy into this Hindenburg Omen, and I don’t know if I fully do just yet as it is new to me, it is still hard to discount the indicator when we see few bright spots, economically speaking.

I could get into the technical analysis of the “head and shoulders” pattern in the market, which is very bearish, but I feel that horse has been beaten to death lately.  I want to be bullish as it is no fun being bearish. Outside of a little “hope” for tomorrow, I have little optimism though.  Our best bet is if we somehow receive unexpected good news in claims Thursday or the GDP revision on Friday, but I wouldn’t hold my breath.  The other option that works is if the markets feel we have priced in the bad news already so that we can rally on the anticipated bad news.  I think we are close to pricing it in already but, the seasonally slow time makes me fearful that we can still trend lower on low volume.

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With that being said, I’ll be looking to exit some positions and reduce risk come Wednesday.  Working with smaller positions is what I feel is best at the moment.  Maybe I’m just falling into the bear trap of being overly negative and fearful of a market crash but it is something I have feared all year, even though I’m the type that tends to look for the positives.

When in doubt, get to the sidelines and do more research.  That is my game plan, outside of some smaller positions, and hopefully a bounce on Wednesday will really help me reduce some risk at favorable prices.  I’m a believer that when the market starts to accept that the economy is bad and we really understand we could see a double-dip recession, we can finally start to rally.  Until then, we are fighting an uphill battle.

As always, do your own homework to see if you agree.  Have a good night and I’ll see you in the morning.  Good luck out there.

Mike

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