Doomsday Prophesies for the Market: Fact or Fiction?
Interestingly enough, the DOW, S&P and NASDAQ charts all look exactly the same at this point (over halfway through trading for the day) – all 3 started way down, barely hit positive only to slide right back down. As of this point, Nasdaq is the only one of the three major indices that has managed to stave of major day-over-day losses; I would expect a moving average to iron out that wrinkle.
If you follow the market closely, you may have heard the term “Hindenburg Omen” being floated out there. In the grand old tradition of divination, this is a “pattern” that supposedly predicts a upcoming crash in Stocks. This omen occurs when a large number of stocks are hitting new highs while other stocks are hitting new lows. When you break it down, it appears that you might squeeze a 25% link between this omen and the downturn it is supposed to predict. I will let Barry Ritholtz sum it up…
“Wake me up when you find something with an actual correlation — last I checked, 25% isn’t even in coin-flip territory.”
There is one other piece of the puzzle that few are talking about, many of those omen-worthy high’s are on preferred stocks, while most of the lows are coming from common stocks.
Personally, I don’t buy it.But whether these signals predict market direction or not, investors may turn this into a self-fulfilling prophecy.
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Geoff Boyd – PrimeLending – Clackamas, OR