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Monday, September 17, 2018 8:20:22 AM
Our Extremely Split Market & What That Has Meant Historically
By: Quantifiable Edges | September 16, 2018
One indicator that has gotten some play in the news lately is the Hindenburg Omen. In last weekend’s subscriber letter I discussed the Hindenburg Omen signal in detail. (Click here for a free trial.) A core premise behind the Hindenburg Omen is that there are a large number of stocks hitting both new highs and new lows. This indicates a split market. When this has happened for multiple days within a short time period, it has often led to market declines. Friday marked the 9th day in a row that NYSE new highs and new lows both exceeded 2.4% of total issues traded. The study below is from the Thursday night subscriber letter, and it looked at streaks of 8 days or more. (I’ll note I also took a quick look this weekend at streaks of 9 days, rather than 8. It barely changed anything.)
… But tonight I simply wanted to look at streaks of these type of split market conditions on their own. With data going back to 1970, I looked for other instances of 8 consecutive days with both new highs and new lows exceeding 2.4% of total issues. Results are below.
There have not been many instances, but the returns after the ones so far have been quite bearish. Below is a list of all the instances assuming a 25-day holding period.
Three of the six instances occurred in 1972. So with just 3 instances since 1972, I am not using this study to generate short-term expectations. But I thought results were intriguing enough to merit a mention. I also reduced the % requirement to see if that would provide some additional instances. Below are the 25 day-results for a 2.2% minimum.
This does not look any better. How about a 2.0% requirement?
Even the lone winner here had an 8.4% decline before turning slightly positive. Bottom line appears to be that having such a split market as we are currently seeing is quite rare. And historically it has not been a good thing for the market.
»»» Read More…
• DiscoverGold
By: Quantifiable Edges | September 16, 2018
One indicator that has gotten some play in the news lately is the Hindenburg Omen. In last weekend’s subscriber letter I discussed the Hindenburg Omen signal in detail. (Click here for a free trial.) A core premise behind the Hindenburg Omen is that there are a large number of stocks hitting both new highs and new lows. This indicates a split market. When this has happened for multiple days within a short time period, it has often led to market declines. Friday marked the 9th day in a row that NYSE new highs and new lows both exceeded 2.4% of total issues traded. The study below is from the Thursday night subscriber letter, and it looked at streaks of 8 days or more. (I’ll note I also took a quick look this weekend at streaks of 9 days, rather than 8. It barely changed anything.)
… But tonight I simply wanted to look at streaks of these type of split market conditions on their own. With data going back to 1970, I looked for other instances of 8 consecutive days with both new highs and new lows exceeding 2.4% of total issues. Results are below.
There have not been many instances, but the returns after the ones so far have been quite bearish. Below is a list of all the instances assuming a 25-day holding period.
Three of the six instances occurred in 1972. So with just 3 instances since 1972, I am not using this study to generate short-term expectations. But I thought results were intriguing enough to merit a mention. I also reduced the % requirement to see if that would provide some additional instances. Below are the 25 day-results for a 2.2% minimum.
This does not look any better. How about a 2.0% requirement?
Even the lone winner here had an 8.4% decline before turning slightly positive. Bottom line appears to be that having such a split market as we are currently seeing is quite rare. And historically it has not been a good thing for the market.
»»» Read More…
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Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Your Due Dilegence is a must!
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