Stock Strategies the Hindenburg Omen Essay

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The Golden Cross is when a security's short-term moving average breaks through its long-term moving average. This would indicate a bull market on the horizon. Right now the 15-day moving average is 16491 and the 50-day moving average is 16370. The 100-day moving average is 16250, so unlike many of the other indicators, the Golden Cross indicates a bull market.

2.

The graph tells me little, actually. It's better to regress these numbers to understand the nature of the correlation than to play the guessing game with a graph that covers the last forty years. The graph does tell me, however, that the growth rate of M1 does not correlate much with recessions. There are two major growths in M1 (in 2011 and in the mid-80s) that had no link to recession. There are also three that were linked, and in each there was a runup in M1 prior to the recession's onset. The problem for me is that 3/5 isn't a reliable predictor.

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The other thing we know is that the Fed usually sets M1 reactively to market conditions -- that might explain the lack of reliability here because the Fed sometimes can bring out certain market conditions (like no recession right now because M1 is very high) and sometimes it is reactionary, using expansionary monetary policy to respond to recessions.

The second graph, with the growth rate and bear market shows a similarly unreliable connection -- again you can regress this stuff and it will be more reliable than a graph. The M1 growth rate spikes a few times, but only in 2009 did this match up with a bear market. The current fall in the M1 growth rate looks like the one in the early 1990s and the one in the mid-1980s, and all three occurred outside of a bear market, and in the case of those previous two the bear market was far away......

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