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Weekend Stock Market Analysis

(6/15/13)

Last week I mentioned we had a confirmed Hindenburg Omen (HO) in place.  For further information you can read the article I wrote last weekend at  http://www.amateur-investor.net/Weekend_Market_Analysis_June_8_2013.htm

Meanwhile let's take a closer look at the prior events to see how the market acted after they were initially triggered.  Back in the Fall of 1987 an HO Signal was triggered in late September.   Prior to the HO Signal the S&P 500 actually peaked in late August (point A) which was then followed by a 9% correction.   Meanwhile a choppy 3 1/2 week bounce followed leading up to the HO Signal in late September which preceded a 34% drop in October.   

The next event was in late 1999 and 2000 when two different HO Signals occurred within a year.  The first HO Signal occurred in December of 1999 which was followed by a short term top in early January of 2000 (point B).  This was then followed by a 10% correction which preceded a sharp rebound in March of 2000 as the S&P 500 made one more higher high (point C).  After peaking in March of 2000 the S&P 500 then went through a volatile period through the Fall of 2000 leading to another HO Signal in October. 

This 2nd HO Signal was then followed a large sell off in which the S&P 500 eventually lost 50% of its value by October of 2002.

Finally the last HO event was in 2007.  This event was somewhat similar to the 1999/2000 event as the first HO Signal occurred in July of 2007.  This was then followed by a 12% correction.   However the S&P 500 managed to make a slightly higher high by October of 2007 which coincided with a 2nd HO Signal.  

Meanwhile the 2nd HO Signal was followed by a large sell off in which the S&P 500 eventually lost 58% of its value by March of 2009.

Overall an HO Event doesn't necessarily mean a large drop is going to occur immediately as shown above.  Furthermore the S&P 500 could even make one more slightly higher high based on past events.  However over an extended period of time previous HO events have not been market friendly.

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