The Short-Term Outlook: Down and dirty, with a near perfect chance of a stock market crash, fast or slow motion, occurring over the coming few weeks and months. Please don't take this warning lightly. Protect your capital. Get out or get short of the market, and protect all vulnerable open long positions with outright sales, hedges, or stops.

According to a little-known technical indicator known as the Hindenburg Omen, the risk of a stock market crash right now is high. Should we pay any attention to this indicator? "Yes" is the answer. This is a confirmed signal with all 5 criteria being met. Expect 15% minimum drop in market values with 22% being the average size.

The Hindenburg Omen is a technical analysis signal that attempts to predict a forthcoming stock market crash. It is named after the Hindenburg disaster, the crash of the German zeppelin of the same name in May 1937.

The origins of this potential stock market crash signal can be traced back to the work of Norman Fosback, author of Stock Market Logic, first published in 1976. Fosback did research on share price highs and lows and developed the first version of the indicator, although it differed from the one used at present. Credit for discovery of the Omen is given to Jim Miekka who wrote a report called the Sudbury Bull and Bear Report. Miekka derived the indicator from a New High - New Low methodology developed by Gerald Appel many years before. Miekka's friend Kennedy Gammage suggested to Miekka that the indicator be dubbed the Hindenburg Omen after the ill-fated zeppelin doomed to crash.

The Hindenburg Omen is the alignment of several technical factors that measure the underlying condition of the stock market - specifically the NYSE - such that the probability that a stock market crash occurs is higher than normal, and the probability of a severe decline is quite high. The rationale behind the indicator is that, under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows - but not both. When both new highs and new lows are large, it indicates the market is undergoing a period of extreme divergence. Such divergence is not usually conducive to future rising prices. A healthy market requires some degree of internal uniformity, whether the direction of that uniformity is up or down.

The traditional definition of a Hindenburg Omen has three criteria:

That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day. That the NYSE 10 Week moving average is rising. That the McClellan Oscillator is negative on that same day. These measures are calculated each evening using Wall Street Journal figures for consistency.

A forth condition is sometimes added:

that new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is ok for new 52 Week Lows to be more than double new 52 Week Highs). The occurrence of all three (or four) criteria on one day is often referred to as an unconfirmed Hindenburg Omen.

A confirmed Hindenburg Omen occurs if a second (or more) Hindenburg Omen signals occur during a 36-day period from the first signal.

June 02, 2006 is the first day since the signal action (downtrend) started that the short term trend is bullish after forming a double bottom. The remaining question is when will the remainder of the downside be played out?

Do you want to retire wealthy? Do you want to get out of debt? This report has all your answers and then some.

1. Bubbles grow at an exponentially increasing growth rate. The growth rate is highest just before the crash.

2. Bubbles always grow larger and last longer than anyone expects. 

3. The crash is a total surprise, coming just when it seems that everyone has accepted the idea that it will continue forever. In fact this acceptance is what causes the crash, no new fools left to bid up the price, everyone is already in. 

4. Bubbles always go up hard at the end and crash hard. Any pause or small dip in the growth rate is unstable and will be followed promptly by an up spike (more likely) or the crash. Thus "buy the dip" is usually very profitable, dips are not the crash, the real crash will be painfully obvious. 

5. The base of the bubble narrows at the top. At first the best tulips go up, then all tulips go up, at the end a select few tulips go ballistic. Then all tulips crash together, usually there are one or two dead cat bounces. 

6. Most fortunes made during the bubble are lost. Very few fortunes are made shorting the crash. The enduring fortunes are made by those able to avoid the crash and buy up cheap assets after the crash (not the tulips, but real assets).

Saturday, November 18, 2006

Resistance -- the point where sellers are likely to surface 

Support -- where buyers are expected to enter the market 

The levels are key elements of technical analysis, which studies prices, volume and charts.