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Hindenburg Omen Indicator, Sep 2010 crash
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Hindenburg Omen Indicator, Sep 2010 crash

  #11 (permalink)
Elite Member
Berlin, Europe
Trading Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
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Fat Tails's Avatar
Posts: 9,753 since Mar 2010
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Death Cross meets Hindenburg

Another fancy way to predict a bear market: the death cross, which is a downward crossover of the 50-day SMA over the 200-day SMA.

The second but the last death cross occured on December 10, 2007. The first close below the SMA(50) after the breakout pullback occured on December 27, 2007. Would not have been a bad moment to enter a short position.

The very last death cross could be seen on July 7, the close below the SMA(50) occured on August 11 (last Wednesday), the day after the FED announcement. So be prepared.

February 26, 1990

Signal preceded the last leg down of the bear market

July 9, 1990

Signal failed, the largest bull market stared just 2 months later

April 19, 1994

Signal failed, bull market continued

September 29, 1998

Signal not confirmed, continuation of the bull market, as price was not able to return below the SMA(50)

October 30, 2000

The retest confirmed the cross with a close below SMA(50) on November 8, 2000. This triggered a major bear market and ES dropped 640 points over the next two years.

August 18, 2004

Signal failed and the bull market lived on happily for some more years.

July 19, 2006

The retest saw no close below the SMA(50), and the bull market went on.

December 27, 2007

Started a major bear market.

To summarize: This is the ninth death cross during the last 20 years. Of the prior eight signals

- 2 were not confirmed by a consecutive close below SMA(50)
- 3 signals failed
- 1 signal triggered a minor down move
- 2 signals triggered strong bear markets

Conclusion: Moving average cross-overs are notoriously unreliable, even if you call them "Death Cross".

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  #12 (permalink)
Elite Member
Massachusetts (USA)
Trading Experience: None
Platform: NinjaTrader
Favorite Futures: YM
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This is a summary of what I posted before on Black Swan events:

1) the disproportionate role of high-impact, hard-to-predict, events in finance (ie. trading)

2) the non-computability of the probability of the rare events (you don't know what today will bring)

3) the psychological biases that make people blind to uncertainty

Identifying a black swan event

Based on the author's criteria:

The event is a surprise.
The event has a major impact.
After the fact, the event is rationalized.

Basically one has to assume (see image) that one of these is coming the current trading day:

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The following user says Thank You to stephenszpak for this post:
  #13 (permalink)
Elite Member
Berlin, Europe
Trading Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
Fat Tails's Avatar
Posts: 9,753 since Mar 2010
Thanks: 4,231 given, 26,088 received
Forum Reputation: Legendary

vegasfoster View Post
The Dow climbed steadily for a little over two years after the 2005 signal, but a head and shoulders is forming on the monthly chart right now, so...

which side is the head?

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