FMX | Connect – www.fmxconnect.com - (Reported 8/20/2010)
Excerpt from McHugh's Financial Forecast & Analysis
We got a "Rounded" Hindenburg Observation Thursday, which is sort of splitting hairs, as we saw 137 NYSE New 52 Week Highs and 69 New 52 Week Lows, with 3,163 total issues traded. The lower of the two, 69 New Lows, came in at 2.1814 percent of total issues traded, which rounds up to 2.2 percent. If we had gotten 70 New Lows, that would have exceeded the 2.2 percent minimum requirement, at 2.213 percent. One issue. So, technically, by the strictest rules, we did not get a second Hindenburg Omen observation, but according to the spirit of the indicator, we did get a second Hindenburg Omen observation Thursday, August 19th, on a rounded basis. New Highs were not more than twice New Lows, the McClellan Oscillator came in negative, and the 10 Week Moving average is rising. We got a first observation last Thursday, August 12th.
So this is a judgment call at this point as far as the Hindenburg Omen goes. We have a confirming second observation, with an asterisk. Given the state of the market, this ambiguity should clear up soon, as we could get another observation at any time. Further decline from here would do the trick. If this is in fact a second observation, then there is now a 30 percent probability that a stock market crash is coming over the next several months, and could start at any time. We have an article posted at our Guest Article section on all the particulars of the Hindenburg Omen at www.technicalindicatorindex.com , if you care to study the history and probabilities in more detail.
If you want my opinion, I'd say Thursday's stats qualify for a second confirming Omen, and we are now on the clock, especially given the thirteen 90 percent panic selling down days and eleven 90 percent panic buying up days since April 26th, 2010's top, a similar indication of a coming collision of bullish and bearish forces.
Short-term, another key question is whether or not Thursday's decline is the start of wave {3} down, wave {i} down of {3} down, or is it the completion of the middle wave {b} down of corrective 3-3-5 flat pattern for wave {2} up? This is a difficult call tonight. Prices fell just short of wave {1}'s bottom, so that leaves open both possibilities. Also, prices fell to the neckline of Head & Shoulders top patterns from the past few weeks, but did not drop underneath those necklines, which again leaves us in limbo Thursday night. We should get clarity tomorrow. A drop from here means {3} down has started, and a sharp bounce from here means wave {c} up of {2} up has started.
Thursday's decline was a 90 percent panic selling down day, the thirteenth since the April 26th, 2010 top. They keep on coming, which is not good. These thirteen 90 percent down days have been interspersed with eleven 90 percent panic buying up days, telling us the same thing the Hindenburg Omens are telling us - that this market is in a state of flux, an unhealthy condition, lacking uniformity, a state of condition where stock market crashes can happen at any time.
On page 11, we show new small Head & Shoulders tops that may be finishing for the S&P 500 and Industrials. A similar pattern exists for the NDX. Should the right shoulders be topping here, these three week old patterns suggest downside targets of 1,025ish in the S&P 500 and 9,700ish in the Industrials. There are other longer-term Head & Shoulders tops in formation as well, shown on page 9.
Our Blue Chip key trend-finder indicators remain on a sell signal Thursday.
We believe wave 3-down has started, which should be a dramatic sell-off. We expect stock markets could lose 20 percent from here. That downside target comes from Head & Shoulders top patterns from November 2009, as well as the proportional decline the Elliott Wave labelings suggest is possible. Prices will not likely drop straight down, but will consist of many corrective rallies, some of which could be strong, but at the end of the day, stocks should be much lower several months from now. We would not be surprised by a stock market crash event some time during this wave 3 drop.
The Industrials plunged almost 200 points intraday Thursday, closing down 144.33 at 10,271.21. NYSE volume rose to 114 percent of its 10 day average on the decline, which is Bearish. Downside volume led at 92 percent, with declining issues at 81 percent, with downside points at 96 percent, the thirteenth 90 percent panic selling down day since the April 26th top. S&P 500 Demand Power fell 8 points to 372, while Supply Pressure rose 11 points to 381, telling us Thursday's move was strong, with deep pockets intervention supporting prices. The Demand Power Indicator and Supply Pressure Indicator intersected Friday, August 13th, triggering an "Exit Long" positions signal, and remains there Thursday. New NYSE 52 Week Highs fell to 137, with New Lows rising to 69 Thursday, 1 New Low shy of a clear cut Hindenburg Omen observation.
The McClellan Oscillator fell to negative -84.39. The Summation Index fell to positive + 2,981.60. There was a small change in the McClellan Oscillator Wednesday, suggesting a large price move was likely over the next few days. Thursday's sharp sell-off was the large price move.
The percent of DJIA stocks above their 30 day moving average fell to 30.00 from 43.33. The percent above 10 day fell to 10.00 from 30.00. The percent above 5 day fell to 26.67 from 73.33. The NYSE 10 day average Advance/Decline Line Indicator fell to negative -199.6, remaining on a "sell" signal from August 16th, 2010, needing to rise above the positive + 120.00 threshold necessary for a new "buy." Our three Blue Chip key trend-finder indicators (other than the Demand Power/Supply Pressure Indicator) remain on a "sell" signal Thursday. The DJIA 30 day Stochastic Fast fell to 30.00, below the Slow at 37.33, remaining on a "sell" from August 11th. The DJIA 14 day Stochastic Fast fell to 6.67, below the Slow at 16.67, remaining on a "sell" from August 11th. The Fast has to rise more than 10 points above the Slow for a new "buy." The S&P 500 Purchasing Power Indicator fell to negative -98.24, remaining on a "sell" from August 11th.
The NASDAQ 100 plunged 27.80 points Thursday, closing at 1,823.00. The Russell 2000 fell 17.08 points, closing at 610.96 Thursday. The HUI fell 2.63 points to 471.18 Thursday. September Gold rose to 1233.8; Silver fell to 18.33, while October Oil fell to 74.77. The U.S. Dollar rose 0.23 points to 82.46. Bonds rose a point to 134^11. The VIX rose 1.85 to 26.44.
Source: McHugh's Financial Forecast & Analysis
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