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How to Trade: The Hindenburg Omen Stock Market Crash

The problem is not liquidity-related right now, but emotional. It's been three years since we had a Hindenburg Omen and we haven't had the right conditions until now. Also, you didn't need a Hindenburg Omen in 2008 to tell you that there was a problem. When there is an uptrend in the market, that's when you need it. So I look at it and acknowledge it, but as long as the McClellan Oscillator turns back positive I say it's not raining outside.

Liquidity signals are saying something other than prices. When you see that the S&P 500 is still below its 2007 high, that's a negative, but the advance decline line has already exceeded its 2007 high, so there is disagreement there. You can't have a strong advance-decline line in absence of strong liquidity. So who do you listen to? I can only say that it's all something to listen to.

TheStreet: Could it just be a slow moment in the news cycle?

McClellan: One data set that is different today than in the past is the blogosphere itself. The blogosphere is larger than it ever was, so you have to adjust for the growth of the blogosphere when thinking about how pervasive the Hindenburg Omen has become in the past few days. It is a slow news period, too, with the August recess in Washington D.C., and no terrorist bombings lately, among a million other things. We have to talk about something, but I think that type of media cynicism misses the mark in this case.

Despite the market showing strong liquidity, remember that economic pessimism is rampant out there, not investment pessimism, but economic sentiment that is horrible. People are about as pessimistic as they were in 2008 for whatever reason, and I would argue that the Hindenburg Omen is getting a lot of attention precisely because people are looking for reasons to fight against the tide of pessimism.

-- Written by Eric Rosenbaum from New York.


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