Hindenburg Omen confirmed as equities slump, buy short ETFsPosted on 12 August 2010 with 5 comments from readers
The complex chart indicator known as a Hindenburg Omen occurred yesterday for the first time since the market lows of March 2009. This is a major chart indicator suggesting a market crash is imminent.
However, a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down, although every Wall Street Crash since 1985 has been preceded by a Hindenburg Omen. If nothing else traders on Wall Street will sit up and pay attention to this key indicator.
Yesterday stock markets around the world had one of their worst days this year with the Dow Jones closing 2.5 per cent lower and the Nasdaq down three per cent. It was a great day for short ETFs which deliver the reverse of market performance.
For example, the FAZ financial x3 bear ETF was up 10 per cent. The short portfolio recommended by the ArabianMoney investment newsletter performed well (subscribe to the newsletter from this website for more information on short ETFs).
How much of the gains that the stock market has made since the low of March 2009 will be given up is hotly debated among analysts. There is no consensus view. Some still see the market higher by the end of the year following a sell off into the autumn.
Arch bear Dr Marc Faber told an audience in Abu Dhabi last week that he thought a 950 low on the S&P 500 was possible by the end of October. This seemed surprisingly optimistic from such a pessimistic commentator but he has faith in intervention by the Fed if the market decline accelerates.
The hard core deflationists like Bob Prechter and Harry Dent have been analyzed many times on this site. They point to an implosion of stock markets with the Dow dropping to around 1,000 points.
That does seem a little hard to swallow. But this does not seem a time to be invested in stock markets. Indeed, the best option is almost certainly the short ETFs for the short-term. Then a smart investor would be well positioned to go long again in the late autumn.
The nice thing about short ETFs is not just that you make money in a falling market but that you are then feeling positive and rich when the market is at the bottom, and can score again by buying cheaply.
Those who dismissed astrologer Arch Crawford and his warnings of a market crash this month might want to read this article again (click here).