MLR – PMP 12/3/14

By | December 3, 2014

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​Major averages rose yesterday on lower volume. The Dow closed on a new high while the small cap Russell 2000 has not seen a new high since early July. The risk is off for small caps which carry more risk than they normally would in this QE-manipulated environment where institutions are more comfortable doing a poor job of keeping up with the market averages by investing in more stable, large cap names. But they have little choice as their mandate usually requires them to invest a majority of their funds. Hedge funds which have no such mandate aren’t faring much better which speaks to the treacherous manipulative nature of the markets over the last few years. There was also a second Hindenburg Omen signal on Tuesday. Two signals close together produce a confirmed signal which can lead to a market correction. For example, we got a Hindenburg Omen on September 18th, 2014, and a confirming Hindenburg Omen on September 19th, 2014, which led to a correction of roughly -10% in the major indices. That said, the Hindenburg Omen track record is spotty at best especially in this QE environment. From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%. That said, since 1985, a Wall Street Journal article dated 8/23/2010 said accuracy is 25%, and usually takes place within the next forty days. The article said the probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Since 2010, Hindenburg Omen has confirmed on the following dates: July 24, 2010 confirmed. Markets did not fall but rallied. Aug 20, 2012 confirmed. Markets fell 3% then resumed uptrend. 3 confirmations in the month of June 2013. Markets fell a few percent then the rally resumed. 3 confirmations in the month of August 2013. Markets fell a few percent then the rally resumed. Sept 19, 2014. Markets corrected roughly -10%.  In this age of quantitative easing, many tried-and-true indicators have failed. It seems that Hindenburg Omen is no exception to this observation.    Various pocket pivots: Vasco Data Security (VDS)I – Computer security systems. Earnings and sales are strongly accelerating, group rank 1. Truecar (TRUE) – Provides market-based pricing data on new and used cars. Earnings just turned slightly positive, strong sales, group rank 47. This is a more speculative stock as it is a smaller cap in a highly competitive space. ANI Pharmaceuticals (ANIP) – Pharmaceutical company focusing on prescriptions. Skyrocketing earnings and sales, institutional sponsorship has increased over the last 6 quarters, group rank 6. Stock is more speculative as it is a highly volatile small cap. Biotech Alexion Pharmaceuticals (ALXN) had a pocket pivot breakout. Pretax margin 42.9%, ROE 28.7%, robust earnings and sales, 7 quarters of rising institutional sponsorship, group rank 4. Scalper1 News

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