Is the Market About to Go Down in Flames?

by Sam Collins | August 14, 2013 2:43 am

Is the Market About to Go Down in Flames?

Stocks fell on Tuesday’s opening, but by noon they had made up the losses and spent the remainder of the session holding onto their small gains. Technology stocks were strong with Apple (AAPL[1]) leading the sector after billionaire investor Carl Icahn disclosed a “large” position in the stock. AAPL gained 4.8%.

July retail sales increased 0.2%, missing expectations, and June inventories were flat. July import prices increased 0.2%, which was shy of an expected rise of 0.8%. And small business optimism for July increased to 94.1 from June’s 93.5.

At Tuesday’s close, the Dow Jones Industrial Average rose 31 points to 15,451, the S&P 500 gained 5 points at 1,694, and the Nasdaq gained 14 points to 3,684. The NYSE traded 586 million shares and the Nasdaq crossed 320 million shares. On the Big Board, decliners outnumbered advancers by 1.3-to-1, but the Nasdaq was almost a breakeven with slightly more sellers than buyers.

08 14 13 omen 300x187 Is the Market About to Go Down in Flames?
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Art Cashin, UBS’ head of floor operations on the NYSE, caught the attention of technicians Tuesday when he said on CNBC that there have been five “Hindenburg Omen” triggers in the past eight trading sessions.

This signal was developed decades ago and has preceded some dramatic declines, including the crash of 1987. More recently, it was triggered in January and February of 2000, and March, April and July of 2006.

In brief, in order for the omen to be triggered, NYSE new highs and new lows must both be more than 2.8% of the sum of advances/declines that day, the NYSE index must be greater in value than it was 50 trading days ago, and the McClellan oscillator must be negative.

In November 2007 and in 1987, the omen showed up a few days before a crash. And now, according to Cashin, we’ve had five in the past eight trading sessions. He also said that about 15% of the signals are false.

Conclusion: I have not fully investigated this phenomenon but have voiced concern recently that other technical signals are negative. The McClellan oscillator is negative, the Relative Strength Index (RSI) has failed to confirm the recent new highs of the Dow S&P 500, Nasdaq and Russell 2000, and the NYSE Advance/Decline Line showed fewer stocks making new highs when the major indices recently hit new highs.

Does this all mean that a “crash” is imminent? Of course not. The trend is still strongly positive but sluggish. However, so many clouds on the horizon often precede a summer thunderstorm. It is definitely time to stay indoors until the sun shines again.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[2].

For a list of this week’s economic reports due out, click here[3].

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. click here: http://www.bloomberg.com/apps/ecal?c=US
  3. click here: http://www.bloomberg.com/markets/economic-calendar/

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