Here’s the thing about unproven “technical” tools: They are dangerous to your wealth.

Recall this article ‘Hindenburg Omen exactly 7 months ago on August 26 2010. If you shorted markets due to the Hindenburg Omen back on August 26 seven months ago, you have now lost about 25% of your money as of yesterday’s close — almost 30% as of the pre-quake peak in February.

And if you were festooned with QIDs, and SDS (like some recent accounts that have come into the office), over the same period those positions are down 44% or so. Ouch.

The problems with the Hindenburg omen is not that we have too small a data set (as some have suggested); rather it is a bad statistical indicator with a poor track record. In the WSJ article, I tried to emphasize both statistical and the psychological:

• The 25% track record is simply too weak statistically to pay any heed to (its worse than flipping a coin)

• The psychology that follows a major crash lends itself to what I called “Recession Porn” — an emphasis on all things bleak and negative. The Hindenburg Omen fits the profile perfectly.

Its worth rereading this article and recalling the Double Dip recession, Pre-QE2 crowd psychology.

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Source:
‘Hindenburg’ Creator Sticks to Guns
STEVEN RUSSOLILLO And TOMI KILGORE
WSJ, AUGUST 26, 2010
http://online.wsj.com/article/SB10001424052748704540904575452013459211330.html

Category: Markets, Really, really bad calls, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Hindenburg Omen? Put a Fork In It.”

  1. MayorQuimby says:

    Yup. But you can’t go long either unless you watch this cr$p every day. We all know the move is to take the free loot from Ben but who will be the first to ‘flinch’ and get out? That will start a rush to the exits.

    The smart money knows this thing is a joke and is not self-sustaining. They’ll cash out leaving most bulls as bagholders. In fact – they are already cashing out.

    What the Fed SHOULD BE trying to propagate is a STABLE economy. Dow Jones 2,500 and stability is FAR more preferable than these ridiculous bursts of hyperinflation that essentially impoverish 99% of the working public.

    They don’t come any dumber than Mr. Beryankme. His hubris…AND Krugman’s will make them laughing stocks for generations.

  2. MayorQuimby says:

    ADD: This whole printing debacle is just a lame attempt to give the top the yield it desires when the bottom can no longer furnish it. Expect some SERIOUS downside when this EIPC FAIL experiment unwinds.

  3. VennData says:

    The Hindenburg Omen is about as reliable as Jay Bilas… VCU 72 – Florida State 71

    http://sports.espn.go.com/ncb/recap?gameId=310840052

    The past is not predictor of the future, period. “Technical analysis” is a crock pot. Set a diverse asset allocation of index ETFs. Buy it. Hold it, then Rebalance it annually. That’s it.

    P.S. Do not pay to be in a March Madness pool. Join a free one and enjoy any luck you get.

  4. dead hobo says:

    VennData Says:
    March 26th, 2011 at 10:41 am

    The past is not predictor of the future, period. “Technical analysis” is a crock pot. Set a diverse asset allocation of index ETFs. Buy it. Hold it, then Rebalance it annually. That’s it.

    reply:
    ————-
    Agree mostly except for the need to re balance more often if the need arises, but no so often you’re fad chasing.

    You’re wasting your time writing in this space about the utter worthlessness of long term technical analysis. Even most short term is totally bogus. A minor amount of common sense makes this obvious. But in this space you may as well be saying some else’s religion sucks when you note the obvious flaws and wild imagination required to claim it works. To many, you are just slapping them in the fact by claiming Zeus isn’t real. Of course they know in their bones this is blasphemy. BR appears to be a true believer.

  5. dead hobo says:

    I’m calling shenanigans.

    The post I replied to said you shorted the market based on the TA. This much longer and very different post says that you scoff at it as much or more than me. WTF!!!!

    BTW, why is this one so bad while so many other goofy long term charts that go back 100 years, more or less, are posted with apparent reverence.

  6. louiswi says:

    One thing for sure. When Thor was running all the thunder and Zeus had a corner on the lightning, the world half way made sense.
    Today, with this one diety silliness, it ain’t workin’ so good.

  7. Sunny129 says:

    BR

    You make those buying into QIDs and SDSs as fools!

    They are tools to be understood and used wisely. I bought them, sold them covered calls more than once, also bought puts against them! Made money both ways and still had the insurance against possible Black Swans! I also buy other 2x/3x long/short ETFs, sell them call cover, buy puts. This works when there is volatility like for the past 2-3 weeks! One can take the advantage their ‘daily’ slip back/ reset feature to your advantage!

    Rest of my portfolio is LONG with numerous dividend ETFs with auto re-investment plans, conservative MFunds with low exp ratio (Vang)

  8. zerohedge2011 says:

    I thought the conventional wisdom was that last summers sell off was in response to economic slowing prior to QE2. When Bernanke gave his “Jackson Hole” speech end of August 2010 (Hindenberg time), the market took off like a rocket and hasn’t looked back. Technical indicators are interesting but one has to respect the overall trend and what contributes to the continuation of the trend versus what could be forceful enough to change the trend. The trend continues to be a sea of 0% money.

  9. brianinla says:

    dead hobo Says:
    March 10th, 2011 at 10:52 am
    Complaining = Winning?

    Speaking of winning, where’s oil going to be end of day today, by tomorrow, and by next Friday? The rout begins today and only a massive idiot would pay $105 again. I’m guessing 100.50 today, 97ish tomorrow and high 80s by next Friday.
    —-
    and what you say is any better? Congrats, you can be just as wrong without even using TA.

  10. u.m says:

    Well, sometimes HO puts pressure on Fed, sometimes doesn’t.

    http://www.safehaven.com/article/17836/the-recent-hindenburg-omen-observation

    I love this part:

    (1) In September 2005, the Fed pumped $148 billion in liquidity from the first week in September, just before the Hindenburg Omens were generated — to the third week of October, an 11 percent annual rate of growth in M-3 (2.5 times the rate of GDP growth and 5 times the reported inflation rate), to stave off a crash. The liquidity held the market to a 2.2 percent decline from the initiation of the signal.

    (2) In April 2004, the Fed pumped $155 billion in liquidity from the last week in April — right after the Hindenburg Omens were generated — to the third week of May, a 22 percent annual rate of growth in M-3, to stave off a crash. Even with the liquidity, the market still fell 5.0 percent.

    What about December HO?

  11. Machiavelli999 says:

    The Hindenburg Omen is a great example of knowing that you can continue to make outrageous predictions and know that there will be no consequences if you are wrong and you will be looked upon as a genius if you are right.

    Last August, the Hindenburg Omen was everywhere. How many news outlets have called out that it was so totally obviously wrong?? So far, just Barry here.

    You can even see it in the comment responses to this blog post. “Yea, Barry. I guess you were right. But any moment now the market will still crash. ANY MOMENT”

    It could be 10, 20, 40 years from now. Sometime in the future, our policy makers will make another catastrophic mistake and all the doom sayers will say “Ohhh!! See!! I was right! I was right!!” It’s the proverbial broken clock being right twice a day.

    There are YouTube videos of Ron Paul back in the late 1980s. Its freaky actually. He is giving the same dooms day prophecies then as he is now. Almost to the word. Yet, has anyone called him out on this? No! Of course not. He is still revered as a hero.

    Right now, I see people’s hate for the Obama administration clouding their analysis of the economy. To them, the economy HAS TO CRASH! It just MUST!! MUST CRASH! And every day that it doesn’t is a conspiracy.

    At this point, the best thing you can do is shrug the shoulders and try to take the opposite side of all the trades these guys make.

  12. Jim Hancock says:

    Am I missing something here? The claim I always hear is that there has never been a crash since 1985 without a Hindy first, not that you should immediately back up the truck short.

    It is a sign of possible instability in the market that could result in crash …and often does, versus NEVER does with no active HO).

    Finally, predicting stock market crashes is like predicting avalanches or earthquakes …it is possible to know the conditions are right, but that is about it.

  13. dead hobo says:

    brianinla Says:
    March 26th, 2011 at 5:21 pm

    dead hobo Says:
    March 10th, 2011 at 10:52 am
    Complaining = Winning?

    Speaking of winning, where’s oil going to be end of day today, by tomorrow, and by next Friday? The rout begins today and only a massive idiot would pay $105 again. I’m guessing 100.50 today, 97ish tomorrow and high 80s by next Friday. and what you say is any better? Congrats, you can be just as wrong without even using TA.
    —-

    reply:
    —————
    You are absolutely correct. Except I’m not a professional money manager, just an old guy who puts preservation of capital ahead of believing in goofy charts. I made about 12% on my energy investment even selling the dip. I only held it for a few months so don’t barf about some goofus you know who is up 100% over the past year. I fucking don’t care. Annualized, my return was in the high double digits. And, it’s free money. Your hero, BR, is still 70% cash.

    True I would be up maybe 16% if I waited a week, but free money is free money. Oil prices still don’t make sense. $105 is still a top and is unsustainably high for a productive economy. A lot of oil stocks appear to be recovering but are not as tightly correlated with oil prices as before. I suspect the $500B Japanese money dump is financing this, which, BTW, no goofy TA could have predicted. I moved the free cash into a value fund the day after selling, which is up since buying. I suspect it will keep rising when energy stops in a few weeks.

  14. macrotrader603 says:

    @dead hobo … the only people who who call charts “goofy” are people who do not know how to make money by trading using technical information…

    lets ask Jim Simons, Bruce Kovner, Paul Tudor Jones and Paul Henry how “goofy” the charts are…google them in the $500 Million net worth and above category…

    your analysis of the energy markets is about as horrible as I have seen in many years…please post all of your ideas so I can trade the other side…

    thanks

    MT

  15. macrotrader603 says:

    @ Barry…

    you have a great site my friend, however when you post this entry before the comments …

    “Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.”

    …alot of guys on here really take that to heart and run with it…haha

    all in all though, phenomenal site, although I disagree with quite a few on here, that what makes markets!

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