I haven't posted in a while. When the market refuses to correct analysis seems futile.
One thing is sticking out right now is that we have had four Hindenburg omen signals in the last 13 trading days (seven if you use the original definition of Hindenburg). A Hindenburg Omen signals in a rising market if 2.8% or more stocks advancing or declining on the NYSE are making a 52-week low and 2.8% or more NYSE stocks are making a 52-week high on the same day. There is no magic in these signals other than they are pointing out that the market is bifurcated with a significant number of stocks in their own private bear market. This is one of the ways markets top. We had a similar situation in October 2007. In that period the small caps failed to make a new high like the other indices did. The small caps eventually dragged the entire market down. To show that these indications don't always lead to a top, we had a significant number of Hindenburg omen signals in December 2014. The ensuing market went sideways for nine weeks but then recovered and went up again. We had a single Hindenburg omen signal in June 2015 which indeed led to a significant correction, nearly of bear market proportions.
One of these days the market will top and move into a bear market. Since 2009, everytime that I believed we might be at a top, I have been proven wrong. The market does not care about my opinion. However, the current situation probably does indicate a soft period, whether it be traumatic or like what happened in 2015/2016. Currently, I am only long but I do prepare short side watch lists just in case. The current short-side watch list contains AKAM, IPHI, JD, MDXG, and TECK. The process I use looks for liquid stocks that have an identifiable topping pattern such as a head and shoulders. Since short position holders have to pay any dividends I also demand that the stocks have a zero yield (or very small). TECK yield is 0.4%.
I update the watch list every weekend in the High Growth Stocks section of this site. The current list includes the following:
BABA, FB, AVGO, QD, WB, MCHP, NOW, YY, ATHM, CARG, RYB, FND, SUPV, HLI
In the High Growth section, I describe the type of entry as well as the entry price.
Mike Scott
