Mike
09-20-2014, 11:20 AM
I was asked via private message whether I am still following Didier Sornette's work. I am, the log-periodic power law confidence level is off the charts on US Tech stocks indicating bubble territory.
We had a Hindenburg Omen yesterday (Google the term if this is unfamiliar). This is a condition where we have high numbers of NYSE new highs and new lows on the same day, plus some other criteria. Normally these precede a topping market before a significant correction. We had numerous warnings prior to the 2007 top. They don't always lead to a bear market, the last series of Hindenburg Omen warnings came before the 10% NASDAQ correction in 2013. High numbers of new highs at the same time as high numbers of new lows points out a possible bifurcated market where a narrowing number of stocks are making new highs while a widening number of stocks are making new lows. Normally a Hindenburg Omen is confirmed by additional warnings.
The following chart supports what I am seeing. It shows that only 45% of stocks trading on the NASDAQ are above the 200-day moving average. With the index near new highs, having more than half of the stocks below the 200-day moving average is significant. I note that on each rally that more and more stocks are being left behind below the 200-day. A strong rally would show the percent of stocks above the 200-day continuously in the range of 50%-75%.
26034
Yesterday showed distribution on the NASDAQ bringing us to a total of five within a trailing 25-day window. This level of distribution is becoming significant. In periods prior to 2009 having five days of distribution would indicate a time to pull some money off the table. IBD put the rally back into confirmed rally (from market under pressure) because the S&P500 index closed at a new high on 9/18/2014 (two days ago). Yesterday's reversal closed below that level that turned us back to confirmed rally status. This implies that with further weakening that we could revert back.
We had a Hindenburg Omen yesterday (Google the term if this is unfamiliar). This is a condition where we have high numbers of NYSE new highs and new lows on the same day, plus some other criteria. Normally these precede a topping market before a significant correction. We had numerous warnings prior to the 2007 top. They don't always lead to a bear market, the last series of Hindenburg Omen warnings came before the 10% NASDAQ correction in 2013. High numbers of new highs at the same time as high numbers of new lows points out a possible bifurcated market where a narrowing number of stocks are making new highs while a widening number of stocks are making new lows. Normally a Hindenburg Omen is confirmed by additional warnings.
The following chart supports what I am seeing. It shows that only 45% of stocks trading on the NASDAQ are above the 200-day moving average. With the index near new highs, having more than half of the stocks below the 200-day moving average is significant. I note that on each rally that more and more stocks are being left behind below the 200-day. A strong rally would show the percent of stocks above the 200-day continuously in the range of 50%-75%.
26034
Yesterday showed distribution on the NASDAQ bringing us to a total of five within a trailing 25-day window. This level of distribution is becoming significant. In periods prior to 2009 having five days of distribution would indicate a time to pull some money off the table. IBD put the rally back into confirmed rally (from market under pressure) because the S&P500 index closed at a new high on 9/18/2014 (two days ago). Yesterday's reversal closed below that level that turned us back to confirmed rally status. This implies that with further weakening that we could revert back.