A couple of ominous patterns are forming in the Nasdaq targets, which could signal that a rise in the stock market, driven by a hopeful US-China tariff, may begin to relax – or at least stop.
Analysts on the popular blog SentimentTrader note that the Nasdaq Composite Index for the first time in months
simultaneously triggered a so-called Hindenburg Omen and an Ohama Titanic Syndrome.
Named after the German conductor who notoriously exploded in 1937 Hindenburg Omen formulated to predict market crash, or severe recession, by synthesizing data, including 52-week highs and lows, as well as shares of moving averages on the New York Stock Exchange. In this case, Nasdaq-listed shares are formed.
Omen was created by Jim Miekka, a blind mathematician, marketer and teacher, who died several years ago. Miekka claimed that his indicator had been an accurate predictor of every market crash since 1987.
Separately, the eerie-sounding Titanic syndrome was coined by Bill Ohama in 1965, and is seen as a "preliminary sales signal." Prominent chart specialist Tom McClellan has told MarketWatch earlier that when lows peak, within seven trading days after a one-year peak for an index, an Ohama Titanic Syndrome signal is triggered.
Jason Goepfert, Head of SentimentTrader and founder of independent investment research firm Sundial Capital Research told MarketWatch that for its purposes, he used the following conditions to determine if Titanic syndrome had been triggered: 1) Nasdaq-100
closed at a 52-week high at some point during the last 7 sessions, and 2) New low 52-week low exceeds the 52-week high on the Nasdaq .
Here's how Goepfert explains how he thinks about the formation of Omen:
For this particular signal, we use three criteria, which probably differ from other sources: 1) The Nasdaq-100 is above the 50-day moving average, 2) Both the new 52-week low and 52-week high of the Nasdaq are greater than 2.8% of all progress and sinking issues, and 3) the Nasdaq McClellan Oscillator is negative. When the signal is triggered, it highlights a "split" market, which is unhealthy. Multiple signals in a cluster are a worrying sign. Traditionally, the signal is interrupted after 30 days, or if the Oscillator becomes positive again, although we have seen that it can cause problems in the market several months in advance.
The strategist said that both developments are "a warning sign that usually precedes trouble" over the coming months, and this is how it played out this summer. However, he warned that only such an occurrence of these patterns, rather clusters, has happened so far. "It's just a single reading, not a cluster of days yet, but it really didn't matter for future returns," he said.
The appearance of these chart patterns in the Nasdaq also comes as the broader market has been rising to new heights with the Nasdaq, Dow Jones Industrial Average
and the S&P 500 index
after everyone has set record bars in recent sessions.
Back in July, the technology-indexed index recorded six combined warning signals Hindenburg and Titanic over the past seven sessions, before markets slid down over the next few months to the last few weeks.
To be sure, the number of market participants noted, an appearance of the so-called Hindenburg Omen or Titanic, has not always resulted in a liquidation of the stock market.
However, some technical analysts and chart watchers have expressed some concern that the current market is showing signs of fatigue that could predict a stock downturn.
In fact, Canaccord Genuity strategist Tony Dwyer, who has been belligerent in the markets, recently stated that a target for buyer over-extension has hit a 99 of a scale that tops 100 to be overbought. "Such a level of overbought in a beef market is not a negative thing, it's just a sign that it's time for a breather," Dwyer noted in a recent article by MarketWatch's Chris Matthews.