Bad Hair Days Are Back

We recently discussed the many divergences between major US indexes, which led us to expect that a downturn in the stock market was close (see The Calm Before the Storm for details). Here is an update of the comparison chart we showed at the time:


The divergences between various indexes seem to be resolving as expected.


The next chart shows analogous divergences between the S&P 500 Index and two major foreign stock markets:


US stocks have diverged from European and Japanese stocks as well.


Sometimes an increase in market volatility does not mean much – but when it happens at a time when the market is trading at extremely high valuations, money supply growth has been low for quite some time and leading economic indicators are weakening, it can be a major warning sign. There are also other reasons to suspect that the recent market upheaval is likely to be of more than just short term significance. 

For one thing, there has been a cluster of “Hindenburg Omens” and “Titanic Syndromes” recently. Both are indicative of a growing lack of trend uniformity and weakening market internals. A brief explanation: the Hindenburg Omen is a sell signal that occurs when new highs and new lows each exceed 2.8% of advances plus declines on the same day. The Titanic Syndrome is triggered when 52-week lows outnumber 52-week highs within seven days of an all-time high in the index concerned.


A cluster of Hindenburg Omens and Titanic Syndromes, via sentimentrader


For another thing, margin debt has actually peaked several months ago, long before the stock market reached its recent high. This often tends to happen near major turning points in the market, although it does not always happen: e.g. in 1937 and 1973 the peak in margin debt actually lagged the peak in stock prices. Still, it definitely happens more often than not.


Margin debt and the S&P 500 Index – peaks in margin debt tend to lead major stock market tops.


None of this guarantees a specific outcome – but the probabilities are definitely not stacked in favor of the bulls at the moment.


Addendum – A Chart to Keep People Awake at Night

Below is a weekly chart of the Euro Stoxx Bank Index. The index is currently challenging a long term support level that was first put in at the height of the euro area debt crisis in late 2011. The sense of urgency and panic that was palpable at the time is conspicuously absent at present – which actually increases the likelihood that the support level will break. Needless to say, that would not be good. In fact, it would probably be doubleplus-ungood.


Euro Stoxx Bank Index – something seems to be very wrong with European banks… bondholders and depositors probably have good reason to be apprehensive.


Charts by stockcharts, sentimentrader, Doug Short/advisorperspectives,




Emigrate While You Can... Learn More




Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


2 Responses to “Rising Stock Market Volatility – Another Warning Sign”

  • HitTheFan:

    You guys ought to dig out your post and charts of the 87 & 29 crashes, and quickly.

    The 29 trading days til the secondary top is fast approaching.

    SPX to 1800-1900 by 24th September. Mark my words.

  • vfor:

    The bank index looks like it is forming a multi-year descending fouth wave triangle that easily could be complete or at a maximum has one more minor top before heading into the abyss.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • No results available

Support Acting Man

Austrian Theory and Investment


The Review Insider


Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


Mish Talk

    Buy Silver Now!
    Buy Gold Now!