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My favourite information sources – Part 5
The Hindenburg Omen is another technical indicator that has been talked about a lot in the media recently. This indicator looks at data from the New York Stock Exchange so it may be more relevant for the US markets. More information on how this indicator is calculated can be found in Wikipedia.
This indicator has a scary name as it is named after the Hindenburg disaster and has historically warned of an impending stock market crash. The Hindenburg Omen has a roughly 25% accuracy rate in predicting big market upheaval since 1987, meaning it’s far from infallible but isn’t inconsequential either. The Hindenburg Omen was sighted on Aug 12, 2010 and has been reconfirmed at least twice since then. If you would like to follow this indicator, the Zerohedge blog tracks and reports each sighting.
Jim Miekka, the blind mathematician who created this technical indicator over a decade ago himself is already out of the stock market. In the latest issue of Miekka’s Sudbury Bull & Bear Report, the headline is, “Our traffic light has changed to red, so you should exit the market.”
September is also statistically the worst month of the market and with the Hindenburg Omen as supporting evidence for a correction; it is probably safer to be out of the markets, unless you have positions that can profit from a falling market. In September 2008, the Lehman Brothers collapse triggered one of the worst stock market sell-offs in history. What could possibly trigger another September crash in 2010? Some possibilities could be a lower than expected revised second quarter GDP or jobs number in the US. Or perhaps it could be the European debt crisis rearing its ugly head again. S&P downgraded Ireland’s debt recently indicating that things are getting worse there despite having adopted very severe austerity measures. Bond yield spreads between safe and risky debt is widening again.
My bet is that the trigger for a major sell-off would probably come from a unexpected source which no one is watching closely, like what is happening in the middle east. Iran just went nuclear on Saturday, the same day Aussies went to the polls. Although most Australian investors are more pre-occupied about who will win the elections, this new development could have far more important consequences than whether Tony or Julia becomes our next Prime Minister. According to Frank Gaffney, President of the Center for Security Policy and a former Assistant Secretary for Defense, we could be at the cusp of war. This story has not hit the major headlines yet, but I suspect it may in the coming days. Do watch the video below if you would like to know more. I am no expert on the situation in the middle east but I am worried by the deadly serious look on Gaffney’s face when he says it is not IF, but WHEN war will break out there. Israel is already preparing for war and September is only a week away, so stay safe….
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