Hindenburg Omen – Legit or Lame?
Markets had a heck of a gap up Monday morning on the walking back of China tariffs from 100% to 10% after Trump’s visit with Xi.
However after all was said and done, markets only closed up 1.2% from the bear engulfer high, vs a peak of 2.33% intraday on Wednesday ahead of the FOMC.
The lack of upside followthrough is particularly notable considering how narrow market breadth has been during this move.
Into the end of the week, the “Hindenburg Omen” warning flashed twice.
But before we freakout and think its the end of the world, understand that this signal has fairly low accuracy as illustrated in the chart annotations below. (Also pictured is criteria to trigger the signal)
As you can see, some cluster of signals anticipate market chop and lack of trend, some even get ahead of the COVID plunge and the 2022 bear market. However, many also completely fail to bring in further downside.
Good context to have, but not a sign to wrap up longs and flip short… Far from it.
FOMC – Powell Pulls The Rug… Kinda…
The other person who said “far from it” was Jerome Powell on Wednesday as it relates to the December 25bps rate cut being a guarantee.
Remember that Powell knows everything he says is scrutinized, and has the potential to move markets.
Its not an accident he specifically went out of his way to say, “December’s decision is not a forgone conclusion. Far from it.”
Fed tracker odds moved from 85% chance of a cut pre FOMC (image 1) to 67% post FOMC (image 2). Note also the change in the “depth of the curve.”
Powell’s comment was more hawkish than the market had expected.
During the Q&A though, Powell was forced to admit something that the market liked quite a bit. Quantitative tightening is set to end on December 1st, but Steve Liesman keyed into the fact that if the balance sheet was set to freeze, it technically may shrink as a % of GDP and thus not provide ample reserves.
This would imply that to keep the balance sheet stable, the Fed will technically have to add to it in order to keep up with the size of the banking system. Not a direct money printer like 2020, but certainly more accommodative policy.
Below is the Fed balance sheet overlaid with the SPX. Don’t expect a huge bailout style rally, but this will no longer be acting as a headwind to markets.
(As if it were the last few years… most impact was 2022 when the tightening cycle was announced)
Mag 7 Earnings
The numbers are out for most Mag 7 companies earnings minus Nvidia set to report towards the end of this month.
The recurring theme continues to be around capex spend expanding for AI related projects. Great for NVDA who will likely get the lion-share of the revenue.
Results are mixed with the following:
- META – Gap Down
- MSFT – Gap Down
- GOOGL – Gap Up
- AAPL – Gap Up
- AMZN – Gap Up
- TSLA – Unchanged (10/23)
Coming Monday are Palantir earnings which will continue to set the tone for AI, which as we know is the primary narrative driving the market. Estimates for Q3 are an average of $0.17/share up 183% YoY.
If markets are to remain bullish it will require good news on this front or a more broad based rotation among other sectors.
What Else?
Aside from the remainder of earnings season, the government reopening paired with the release of labor reports, is another major catalyst the market is looking for. TBD on this front.
October has been a great month for swing and longer timeframe traders in this straight up market. Less so for short timeframe traders with intraday moves rarely sustaining the overnight momentum.
I’ll be continuing to monitor how “fluid” and “cooperative” the intraday sessions are before scaling intraday operations back up to full size.
Trade Brigade Live Squawk
Make the most of the final trading quarter with live intra-day commentary on breaking opportunities.
Check out this recording for a taste of what each morning session is like: 07/09 Live Squawk
Onboarding support will be available through the evening and Monday morning starting at 6:30am EST before the 8am premarket-prep kick-off.
Broad Market Analysis
SPY – Monthly
Monthly bars closed out and look great. Continuation takes care of itself, however IF a pullback were to emerge, there’s plenty of room for a MoHL at or above the pATH.
SPY – Weekly
Clean up trending channel but the last bar starts to look like classic topping action with failure to hold higher prices into the close. Pullbacks have the best shot at HLs over the engulfer high. If we fail back into the 4 week balance, things likely get sloppy again.
SPY – Daily
Although markets are sloppy, they are balanced to up. Key levels in play are the ATH, pATH, and the Junk Drawer™ high.
Under the daily 20 things may not go so smoothly for markets being back inside of the engulfer range. There is still a weekly higher low opportunity, however daily falls back into balance and expectations are low for trend.
SPY – Hourly
Because we are still in the FOMC and chop range from Thursday as of Friday close, almost anything goes in the market. As we’ve seen, higher timeframe trends are up, but short term is mixed at best. Gap structures below still provide great spots for DHLs.
Market Internals
These lean a bit more bearish as opposed to neutral, but the takeaway here is that on Thursday with bearish internals, why were sellers unable to close the Sunday gap all the way? Seems like buyers are slowing down rather than sellers speeding up.
Market Profile
Value was unchanged into the end of the week. Wednesday’s FOMC indicates value higher and VAL is confluence with Thursday high. If price can take Thursday high back, likely bullish for markets.
HYG – Junk Bonds
The canary in the coal mine recently has been junk. With a bearish divergence building out here relative to the depth of the pullback last week it seems better structure may be needed before revisiting ATHs confidently in the index.
If you want the full take, including all of the nuance of breadth, risk appetite and much, much more, check out the weekend episode here:
Economic & Earnings Calendar
Note TENTATIVE on USG employment data… likely to not come out unless a reopening announcement is made.
Top watches: PLTR, AMD, HOOD, QCOM
Swing Stock Scans
AXGN – Daily / Quarterly
Great strength on FOMC into the end of week holding the rally. This is the top of a multi year range, and if volume can continue to come in pushing price over the 24 handle, might be time to get some lift. Worth a watch.
IBM – Daily
Great flag action happening at ATHs. So long as pullbacks remain over the 296 level thinking about upside continuation.
LVS – Daily
Despite hearing about folks mentioning “Vegas is dead” the stock is far from it. Looking at this flag over prior highs is interesting for continuation into 64 should it hold over 58. Nice initiating gap on earnings, now time to see if it can follow through after consolidating near the highs.