Posts Tagged ‘market crash’

Hindenburg Omen Redux, How Dire Is It Anyway?

Hindenburg Omen Redux, How Dire Is It Anyway?

Courtesy of asiablues at Zero Hedge 

By Dian L. Chu, Economic Forecasts & Opinions

The Hindenburg Omen was triggered again last week, as reported by the WSJ MarketBeat. This is the second time this month since its first occurrence on Aug. 12. For those not familiar with the term, the Hindenburg Omen is essentially a combination of four bearish technical indicators on the NYSE occurring on the same day, which would signal increased probability of a stock market crash. 

Wall Street is quite abuzz since the Omen seems to have a pretty good track record as Wikipedia documented the probability of greater than 5% downside after a confirmed Hindenburg Omen was 77% within the next forty days.  But before everyone goes running for the exit, the probability of a major stock market crash was only 24%, and it would also help to take a closer look at the significance of the Hindenburg Omen itself.

Although Jim Miekka, a blind former physics teacher living in Florida, is said to be the creator, the Hindenburg Omen is largely based on Norman G. Fosback’s High Low Logic Index (HLLI). In an article dated Aug. 24, Mr. Mark Hulbert at MarketWatch recounted a discussion with Mr. Fosback that HILI mainly focuses on the lower of new 52-week highs and new 52-week lows amounted to at least 5%--vs. the 2.5% applied in the Hindenburg Omen--of the sum traded on the NYSE. Fosback believes "this lower cutoff is way too low to be considered bearish."

Another issue, as pointed out by Hulbert, is that the highs and lows numbers are somewhat distorted because many stocks traded on the NYSE are non-operating companies. Hulbert cited findings from Ned Davis Research that excluding non-common stocks on the NYSE, the Hindenburg Omen would not have been tripped, as the new 52-week highs ratio would have been just 0.4% on Aug. 12. 

There’s also lack of clear definition as to how many stocks have to reach their highs and/or lows to qualify as the Omen.  Other critics believe the Hindenburg Omen may simply be a case of data-mining and overfitting of seemingly random criteria.

My take is that the convergence of several bearish technical signals is a manifestation of the current heightened market risks and volatility stemmed primarily from the economic uncertainty after the global financial crisis, instead of a "leading indicator" for some significant market…
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HFT Firm Faces Charges For Causing “Oil Trading Mayhem”

HFT Firm Faces Charges For Causing "Oil Trading Mayhem"

Courtesy of Zero Hedge 

high frequency trading

Could the tide finally be turning on the high frequency churners-cum-manipulators? In an exclusive report, Reuters informs that "a big high-frequency trading firm faces possible civil charges by regulators after its computer ran amok and sparked a frenzied $1 surge in oil prices in February, according to documents obtained by Reuters and sources familiar with the continuing investigation."

The firm in question is Infinium Capital Management, which confirmed that it is the company at the center of a six-month probe by CME Group Inc into why its brand new trading program malfunctioned and racked up a million-dollar loss in about a second, just before markets closed on February 3. And yes, once all is said and done, it will be precisely this kind of algos gone wild that are found to have caused the much more devastating move on May 6, as we have been claiming all alone, and which the HFT lobby has been fighting tooth and nail to bury under the rug.

More from Reuters:

The glitch explains for the first time the lightning-quick oil-trading surge of that day — and it may have been a catalyst for the abrupt and largely unexplained $5 slide amid record volumes the following two days.

The firm’s buying frenzy also reveals how faulty computer codes, known as algorithms, can spark sharp volatility and send electronic markets spinning all in the blink of an eye.

Futures exchange operator CME Group is looking into the incident, which occurred at the New York Mercantile Exchange and highlights some of the same electronic-trading concerns raised by May’s "flash crash" in the U.S. stock market.

The specifics on the actual trade:

Infinium, a household name in Chicago’s burgeoning trading community, relies on computer horsepower and quantitative models to earn razor-thin profits from short-term trading. It uses its own money to make markets and capitalize on tiny imbalances, a common high-frequency strategy.

The documents, dated March, reveal that Infinium used an algorithm that was less than a day old to execute a "lead/lag" strategy between an exchange-traded fund called United States Oil Fund, which tracks oil prices, and the U.S. crude benchmark future, West Texas Intermediate.

The algorithm was turned on at 2:26:28 p.m. (Eastern) on February 3, less than four minutes before NYMEX closed floor trading and settled oil prices. It


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Is A Market Crash Coming? The WSJ Ponders…

Is A Market Crash Coming? The WSJ Ponders…

Courtesy of Tyler Durden

In a unorthodox piece by the WSJ, which goes direct to discussing some of the less than pleasant possible outcomes of central planning, Brett Arends asks "could Wall Street be about to crash again? This week’s bone-rattlers may be making you wonder" and says: "way too many people are way too complacent this summer. Here are 10 reasons to watch out." And without further ado…

  1. The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That’s well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you’re getting paid well to take risks, they may make sense. But what if you’re not?
  2. The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should drive down long-term interest rates. Great news for mortgage borrowers. But hardly something one wants to hear when the Dow Jones Industrial Average is already north of 10000.
  3. Too many people are too bullish. Active money managers are expecting the market to go higher, according to the latest survey by the National Association of Active Investment Managers. So are financial advisers, reports the weekly survey by Investors Intelligence. And that’s reason to be cautious. The time to buy is when everyone else is gloomy. The reverse may also be true.
  4. Deflation is already here. Consumer prices have fallen for three months in a row. And, most ominously, it’s affecting wages too. The Bureau of Labor Statistics reports that, last quarter, workers earned 0.7% less in real terms per hour than they did a year ago. No wonder the Fed is worried. In deflation, wages, company revenues, and the value of your home and your investments may shrink in dollar terms. But your debts stay the same size. That makes deflation a vicious trap, especially if people owe way too much money.
  5. People still owe way too much money. Households, corporations, states, local governments and, of course, Uncle Sam. It’s the debt, stupid. According to the Federal Reserve, total U.S.


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How HFT Quote Stuffing Caused The Market Crash Of May 6, And Threatens To Destroy The Entire Market At Any Moment

How HFT Quote Stuffing Caused The Market Crash Of May 6, And Threatens To Destroy The Entire Market At Any Moment

Courtesy of Tyler Durden at Zero Hedge 

Even as the idiots at the SEC mope about cluelessly, confirming they deserve not one cent of taxpayer money to fund their massively overbloated budget, and should all be summarily fired to collect tarballs in the Gulf of Mexico (and soon Maine), our friends at Nanex have conducted an exhaustive analysis (must read for everybody concerned about market structure), in which they identify the various parties responsible for the market crash, and, drumroll please, High Frequency Trading stands at the pinnacle of culprits for the 1,000 point Dow drop. From their findings: "While analyzing HFT (High Frequency Trading) quote counts, we were shocked to find cases where one exchange was sending an extremely high number of quotes for one stock in a single second: as high as 5,000 quotes in 1 second! During May 6, there were hundreds of times that a single stock had over 1,000 quotes from one exchange in a single second. Even more disturbing, there doesn’t seem to be any economic justification for this. In many of the cases, the bid/offer is well outside the National Best Bid/Offer (NBBO). We decided to analyze a handful of these cases in detail and graphed the sequential bid/offers to better understand them. What we discovered was a manipulative device with destabilizing effect."

In other words: enough with all the bullshit about HFT as a liquidity provider mechanism: in reality this is just a facade for the most insidious, computerized market manipulative device ever created. Nanex’ conclusion: "What benefit could there be to whomever is generating these extremely high quote rates? After thoughtful analysis, we can only think of one. Competition between HFT systems today has reached the point where microseconds matter. Any edge one has to process information faster than a competitor makes all the difference in this game. If you could generate a large number of quotes that your competitors have to process, but you can ignore since you generated them, you gain valuable processing time. This is an extremely disturbing development, because as more HFT systems start doing this, it is only a matter of time before quote-stuffing shuts down the entire market from congestion. We think it played an active role in the final drop on 5/6/2010, and urge everyone involved to take…
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Jon Stewart on the Flash Crash

Jon Stewart on the Flash Crash

Courtesy of Josh M. Brown, The Reformed Broker 

The market plunged because of a "Perfect Storm"…one that happens about every two weeks.

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
A Nightmare on Wall Street
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

 


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Save Our Short-Sellers

Tim presents a good argument in favor of not restricting short-selling in an effort to prop up overvalued markets.  - Ilene 

Save Our Short-Sellers

elaine supkisCourtesy of Tim at The Psy-Fi Blog 

Short Selling Scapegoats

Whenever there’s some kind of major market crash and people start looking for handy scapegoats the usual line-up of suspects will include a preponderance of short-sellers, accused of unpatriotically selling stocks they don’t own in order to make windfall profits. It’s as though making a profit when everyone else is losing money suddenly becomes wrong. When times are tough it seems everyone’s a bleeding heart socialist.

Instead of banning short-selling regulators ought to be focusing on what measures they could take to make it more popular. If you want markets to be roughly efficient and not to fly off on some behaviourally induced flight of fancy then you need intelligent investors to be able to short-sell over-valued stocks. Waiting until everything goes wrong and then artificially distorting the markets in order to apply a tiny band-aid to a market holed below the waterline by a bloody great iceberg of behavioural bias is to invert cause and effect. Short-selling doesn’t cause market crashes, people do.

Shorting’s Scary

Shorting a stock is roughly the opposite to buying it. Technically you’re selling a security you don’t own and then waiting for it to fall so you can buy it back at a lower price, pocketing the difference. Although there are different ways of shorting there are ultimately only a couple of basic variations – covered shorting where you either own or, more likely, borrow the stock for a fee or naked shorting where you actually don’t have any of the stock you’re selling.

Shorting shares is not, generally, a widespread activity amongst investors. There are multiple reasons for this. Many institutional investors aren’t allowed to short stocks due to their remit, most individual investors don’t short due to behavioural issues and fears of unlimited losses. These individual concerns are linked – as we saw in discussing behavioural portfolios investors don’t like their losses from their upside potential layer eating into their downside protection layer, but as losses from shorting are potentially unlimited, this is a real risk for short-side investors.

Unlimited Liability

When we buy stocks the maximum we risk is the capital we put down up front, but when…
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Pictures of a Market Crash: Beware the Ides of March, And What Follows After

Pictures of a Market Crash: Beware the Ides of March, And What Follows After

Courtesy of JESSE’S CAFÉ AMÉRICAIN

There are a fair number of private and public forecasters that I know who anticipate a significant market decline in March.

Let’s review where we are today.

The Bear Market of 2007-2009, marked by the Crash of 2008, was a massive decline in equity prices precipitated by the bursting of the credit bubble centered around housing prices and packaged debt obligations of highly questionable valuations.

Even today, I think most people do not appreciate the sheer magnitude of the decline, and the damage it has done to the real economy. This is the result, I believe, of three factors:

1. An extraordinary expansion of the Monetary Base by the Federal Reserve not seen since the aftermath of the Crash of 1929, and a swath of financial sector support programs from the Fed and the Treasury, resulting in a spectacular fifty percent retracement from the bottom.

2. A comprehensive program of perception shaping by the government in conjunction with the financial sector to raise consumer confidence and prevent a further panic.

3. An understandable preoccupation with the details of breaking news, and a short term focus on particular events and even exogenous controversies, without a true appreciation of the ‘big picture,’ in part because of some very effective public relations campaigns.

This is resulting in a remarkable case of cognitive dissonance in which the victims of a spectacular man made calamity are opposing remedies and aid as too costly, as they walk around bleeding in the carnage. 

For those who read the contemporary literature in the early Thirties, this is nothing new. In the early Thirties there was no sense of the magnitude of what had happened, except for a few notable exceptions, and the sense of ‘life goes on’ seems almost eerie to a modern reader. Indeed, Herbert Hoover could dismiss a delegation of concerned citizens with the advice that they were too late, the crisis was past.

The parallels with the Thirties and the Teens (today) are many, and uncanny.

There is the reformer President, elected to redress the policies of his Republican predecessor. In the Thirties they had FDR who was a decisive and experience leader. In the Teens the US has a community organizer much more in the sway of the Wall Street…
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Selling the good news does not a bull market make

Selling the good news does not a bull market make

Courtesy of Edward Harrison at Credit Writedowns

markets-2009-09-01 So we started September in an ugly way. With the markets down 2% across the board, and oil and bond yields also falling.  Forgive me for thinking this is a bad sign, but selling on good news doesn’t sound very bullish.

And the ISM data definitely was bullish. Production 61.9 – Yay! New orders 64.9 – Hurrah! What’s not to like? But the Dow was down 185 points – Boo!  What gives? 

Well, for one, bank shares were decimated (see the sea of red in the chart [below]?). But, there’s more to it than that; Wal-mart was the only stock to rise in the Dow. For the S&P, we had breadth of 16-1 for decliners to advancers.  This was a broad-based selloff – and one that took place with the backdrop of positive economic data from manufacturing and housing.

To me, that is a very worrying sign. Now, obviously I expect a market correction (see posts here and here). But, I neither expect nor want a crash (I do think this is a possibility, however, given how far stocks have run without a correction).

It is now September, the month of market jitters,  and the financial services industry is headed back from their long slumber.  Things get serious in September. Let’s hope they don’t get too serious or Paul Tudor Jones is looking like a financial prophet yet again.

 


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Zero Hedge

Bitcoin Crashes As Much As 15% Amid Unsubstantiated Report Of Money Laundering Crackdown

Courtesy of ZeroHedge View original post here.

In a crash that started late on Saturday evening and accelerated throughout the night, Bitcoin and the entire cryptocurrency space plunged the most in more than seven weeks, just days after hitting a new all time high ahead of the Coinbase IPO.

Bitcoin coin fell 12% to $53,400as of 8:0 a.m. in New York on Sunday, after plunging as much as 15.1% to $51,707.51 in the Asian day. Ether, the second-largest token, dropped almost 18% before paring losses.

...



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Phil's Favorites

Have Bear Markets Changed Forever?

 

Have Bear Markets Changed Forever?

Courtesy of 

We’ve never seen a bear market like the one we just lived through. Nothing comes close in terms of how quickly it started and how quickly it ended.

In just 19 days, the Dow was 20% below its highs. In 22 days, it was 30% below. And in just 27 days, it was all over. The bottom was in. To call this unusual is an understatement. You can see in the chart below that most bear markets take literally hundreds of days to bottom.

This entire bear marke...



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Digital Currencies

A Unifying Theory of Everything

 

A Unifying Theory of Everything

Courtesy of Scott Galloway, No Mercy/No Malice@profgalloway

This week, New York Magazine let me go full stream of consciousness on … everything. Their editor pitched me the idea to articulate a unifying theory on “this whole crazy techno-fiscal moment.” Problem is, while I understand crypto better than 99 percent of people, I do not understand crypto.

On Wednesday, crypto pioneer Coinbase listed shares on the NASDAQ, and closed the day at an almost $100 billion valuation, making it nearly as valuable as Goldman Sachs. Coinbase’s big day made a bunch of wealthy people wealthier, but it also poked several bears — ...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Biotech/COVID-19

Scientists are on a path to sequencing 1 million human genomes and use big data to unlock genetic secrets

 

Scientists are on a path to sequencing 1 million human genomes and use big data to unlock genetic secrets

A complete human genome, seen here in pairs of chromosomes, offers a wealth of information, but it is hard connect genetics to traits or disease. HYanWong/Wikimedia Comons

Courtesy of Xavier Bofill De Ros, National Institutes of Health

The first draft of the human genome was publ...



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Chart School

Money Printing Asset Price Targets

Courtesy of Read the Ticker

The FED giveth and the FED taketh away. Right now the FED is giving a lot into 2022 US Mid Terms. 

Unless the FED breaks the market, here are some BRRRRR asset price targets, not normal price targets but money printing adjusted price targets. 


BITCOIN 175,000 to 500,000 USD

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DOW to 40,000 to 50,000

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More DOW

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Politics

Colombia gives nearly 1 million Venezuelan migrants legal status and right to work

 

Colombia gives nearly 1 million Venezuelan migrants legal status and right to work

Venezuelans wait at the Colombian border to be processed and housed in tents in 2020. All Venezuelans now in Colombia will receive a 10-year residency permit. Schneyder Mendoza/AFP via Getty Images

Courtesy of Erika Frydenlund, Old Dominion University; Jose J. Padilla, Old Dominion University...



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Kimble Charting Solutions

Will Historic Selloff In Treasury Bonds Turn Into Opportunity?

Courtesy of Chris Kimble

Long-dated treasury bonds have been crushed over the past year, sending ETFs like TLT (20+ Year US Treasury Bond ETF) spiraling over 20%.

Improving economy? Inflation concerns? Perhaps a combination of both… interest rates have risen sharply and thus bond prices have fallen in historic fashion.

Today’s chart looks at $TLT over the past 20 years. As you can see, the recent decline has truly been historic. $TLT’s price has swung from historically overbought highs to oversold lows.

At present, the long-dated bond ETF ($TLT) is trading 7.8% below its 200-...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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Promotions

Phil's Stock World's Weekly Webinar - March 10, 2021

Don't miss our latest weekly webinar! 

Join us at PSW for LIVE Webinars every Wednesday afternoon at 1:00 PM EST.

Phil's Stock World's Weekly Webinar – March 10, 2021

 

Major Topics:

00:00:01 - EIA Petroleum Status Report
00:04:42 - Crude Oil WTI
00:12:52 - COVID-19 Update
00:22:08 - Bonds and Borrowed Funds | S&P 500
00:45:28 - COVID-19 Vaccination
00:48:32 - Trading Techniques
00:50:34 - PBR
00:50:43 - LYG
00:50:48 - More Trading Techniques
00:52:59 - Chinese Hacks Microsoft's E...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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