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Friday, June 20, 2008

Hindenburg Omens: I am Bear, Hear Me Roar

I am BEAR, hear me ROAR.

Since the S&P hit 1440 and broke DOWN and OUT of the Bear Wedge, things have gotten ugly quickly for the Bulltards. Losing the 1332 area will result in another round of selling…

The Three Hindeburg Omens Since June definitely aren’t a good sign for the Bulltards. A cluster of seven omens actually preceded the plunge to ‘lock limit down’ at 1255 where Ben ‘Helicopter’ Bernanke stepped in with his first surprise, emergency 50 basis point rate cut.

The Hindenburg Omens would have got you out of equities way back in November when I posted 5th Hindenburg Omen in this Cluster. Those of you with quick trigger fingers could have escaped your long positions when the first three omens printed consecutively on Wednesday, Thursday and Friday in October in Hindenburg Omen.

If you’re thinking WTF is a Hindenburg Omen? Click here.

For a while there the Bulltards grew complacent as they believed in their Great Savior Ben ‘Helicopter’ Bernanke. No longer.

Using the ProsShares Ultra Short S&P 500 (SDS, candle) to represent the inverse of the S&P 500 and plotting the price action against the volatility (VIX, grey area) the positive correlation between the two becomes crystal clear. As VIX falls, the market rises. Conversely, extremely high VIX readings in excess of 30 tend to set bottoms (in the case of SDS, tops). A reading of less than 20 on the VIX now, probably represents extreme complacency for this type of environment. I would therefore expect and look for general equity weakness.

Pre-Crisis Levels:
VIX < 15. Farm animal stupid levels of complacency and risk taking. The VIX actually dropped into the single digits as easy credit and 'liquidity' fueled the greatest and dumbest credit and real estate bubble to date...

Crisis Levels:
VIX < 20. Crazy, irrational complacency as the largest credit and real estate bubbles ever implode. Bulltards are content, massively long and leveraged to the tits. Equities are likely to absolutely shit...

VIX > 30. Crazy, irrational fear. Equities likely to bottom short term… although the VIX can and has spiked much further in the past when the ‘wheels finally came off’.

With the Fed Funds Rate now at 2.00% and oil mocking Bernanke from the lofty heights of $139.89 the Fed is starting to look impotent. The Fed balance sheet is rapidly being depleted and now consists mostly (54%) of ‘toxic junk that nobody else wants’. In the Fed’s Balance Sheets Shares by Facility the rapid and CONTINUED deterioration of the financial system is clearly obvious.

In March I warned the Fed is Almost out of Ammo: “The Fed has almost run out of ammo. Much like George Soros on Black Wednesday, when he ‘broke the Bank of England’, global capitalists are damn near close to breaking the Fed. 60% has been committed and it doesn’t seem to be working. Another push and things could unravle quickly...”

Just because things look scary now, doesn’t mean they can’t get worse… Scary Fed Charts: JUNE, ‘Just’ 1% of GDP Now.


Danny said...

How do you like

I'm working on a new setup. What trading platform do you use?

QID is rocking right now. The tech leg down has just started.

Ben Bittrolff said...

Danny, is great site. The charts look good and work well for the purposes of my blog.

I use TT X-Trader Pro for my trading platform and CQG for my charting.

Danny said...


Thanks. TT Xtrader seems a little intense for me right now. I trade here and there from an interactive brokers account but would like to get to know more. I do more fundamental analysis now, but technical has started to interest me a lot.

Anonymous said...

Been reading your stuff for months. All good facts... if you know the facts, it is hard to argue about the Fed. No ammo left. No one wants US dollars/debt. If one bank drops, the fed cant cover...and many others will fall.

Reminds me of how in the 20's, the Carnegie's of the world (i.e. now the FED) saved the market one time...but at the next big sell off, they could not bolster the market...and BOOM!

IIO said...

Nice chart. Its almost funny to think that back in May, alot of CNBC folks were suggesting banks and homebuilders were a buy.

Despite the continued erosion in the economy and financial systems, I'd bet that before the market completely and utterly collapses, the May top will again be tested unsuccessfully and make a splendid place to get short.

Shantanu said...
This comment has been removed by the author.
Shantanu said...

Hey Ben:

I believe that CNBC should have interviewed you 3 weeks ago on the Hindenburg Omen indicator. Barrons latched onto it a tad bit too late.

Sorry didn't include the link earlier

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