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HO HO HO! Have Markets Gone Completely Crazy? Or Just Their Prognosticators?

by Ellen Brandt, Ph.D.

The Hindenburg Omen, sometimes abbreviated as HO - or HO HO HO! -  is just the latest in a string of "indicators" possibly designed to scare some investors out of their wits, while providing "better trading opportunities" for others.
Are you beginning to get the feeling that our markets the past few months are akin to those Haunted Houses that spring up all over the place at Halloween - quite a lot of BOO'ing, but worms that turn out to be Mom's spaghetti after all?
First, we had Nassim Nicholas Taleb and his Flock of Black Swans. No matter that he was promoting a best-selling book. He scowled so dramatically, we had to believe him.
Then, long-time Market Astrologist Arch Crawford came out of his bunker, looked at the sky, and declared that The Four Horsemen were writ large among the Constellations. It may just have been bad weather somewhere in the Galaxy, but respectable news outlets felt bound to report it.
Now, it's not just one, but apparently several sightings of the Hindenburg Omen - whose acronym is HO - or HO HO HO! - a technical indicator based on the McClellan Oscillator - MO MO MO - itself a technical indicator - plus ratios of new highs and new lows posted at the NYSE.
If only some brilliant technician would come out with something named the Jensen Oversold indicator - JO JO JO - we could all have such fun with HO HO HO! MO JO MO JO MO JO! I think I'll try to recruit a Ms. or Mr. Jensen.
Meanwhile, since we are all in the thrall of Predictors With Catchy Titles, I thought I'd survey some of my Trader friends to see if they had devised any proprietary market indicators they personally swear by. Here are the results (Tongue-Firmly-in-Cheek) of my survey:
1. The SPY/SPY Signaler:  My friend Bootsie, a money manager from Omaha, thinks that volatility in the Spyder ETFs depends on Market Makers' subconscious obsession with espionage, based on their consumption of popular media. Her favorite indicator measures the number of times newsmakers, actors, or characters with the names "Boris" or "Natasha" appear on the top twenty broadcast TV channels within a 24-hour period.  
While the Signaler may be skewed by crime sweeps in Brighton Beach or reruns of the popular movie Species, Bootsie is convinced it is 99 percent accurate.
2. The High Stakes Gambit:  Since 94.789 percent of all thoroughbred horses qualified to run in graded stakes races are currently owned by hedge fund managers, Mitch, an analyst from Baltimore, keeps careful track of which horses snag the top purses each week and which Hedgies own the Nifty Nags Who Snag. 
He then researches these horsemen's top equity holdings, believing they will do especially well the following week. "Happy Hedgies buy more of their favorite stocks," maintains Mitch. "And there's no greater happiness-inducer than getting your photo on the front page of the Daily Racing Form."  
3. The Citizen Cane Correlation: Andrew, an active trader from Dallas, keeps an eagle eye on the relative price performance of sugar and coffee futures, which he cites as a leading indicator of consumer confidence. When sugar is on top, it shows that consumers are feeling well enough to spike their java with cubes of sweetness. Coffee on top, the public's mood is turning black.
One caveat:  Too much coffee straight up is known to cause dyspepsia, meaning coffee price spikes can sometimes result in excessive Doom and Gloom and lead to oversold conditions. And grimacing market commentators.
4. The Tinseltown Touchstone:  It's a scientifically-proven fact that Hollywood celebrities are wrong 97.0245 percent of the time they confidently offer their opinions on anything to do with business or finance. My friend Harriet, a value investor from Spokane, has assembled a proprietary database of Surmises from Starlets and Divinations by Directors, which she insists is nearly foolproof in its contrarian capabilities.
"Always bet against them," she confidently insists. "For instance, if the latest Oscar-winner says to avoid investing in Tuvalu, because the Mid-Oceanic branch of Greenpeace believes the Evil Islanders are torturing tuna, you can be sure some crafty Australian Oligarchs have discovered a process for extracting titanium and tantalum from coral reefs."
5. The Fall of the House of Ushers Forecast : Market researcher Julia, who's based in Orlando, utilizes another Hollywood - or for that matter, Bollywood - related signal, comparing attendance at first-run movie theaters to cheaper forms of amusement, like window-shopping at malls or walking on the beach. "I haven't been to a movie in years," says the Providence-based researcher. "The prices are simply too outrageous - and don't get me started on soda and popcorn."
But when Americans shun costly and overhyped attractions, it can have a positive effect on the stock market, Julia asserts. "It positively impacts the savings rate. And what is more dramatically compelling - if not always entertaining - than the market swings we've lived through lately?" 
6. Taittinger Bands: Baffled by the Euro's behavior recently? My friend Pierre, an expat investment banker from Albuquerque, frames the omnibus currency's day-by-day performance between comments from Bundesbank President Axel Weber, whose every syllable favoring more stimulus - as we saw a couple of weeks ago - takes the currency lower and statements from austerity-minded German Chancellor Angela Merkel, which tend to take the Euro higher.
He calls his signaler Taittinger Bands - instead of, say, Hefeweizen Bands - in deference to Jean-Claude Trichet, President of the European Central Bank.
7. The Cup and Handel:  Many technical traders like to pore over stock price charts and decipher their mysteries by glomming onto patterns that seem to form little pictures - veritable ideographs - as stocks move up and down and up again. 
Arthur, an accomplished chartist from Nashville, has great faith in a sophisticated little pattern he dubs the Cup and Handel, after Georg Friedrich Handel, superstar German composer of the Baroque era. The "Messiah" creator was known for his long curling wigs, which make him resemble a slightly paunchier version of the singer Bette Midler. And Arthur can see Handel-wiglike patterns in various stock charts about to bounce after a dry period. If the "Handel" cascade is followed by a "cup" ideograph, the bounce will be 30 percent larger than normal.
8. The Lightning Drowned Signal: James Cramer, of CNBC's "Mad Money," is both revered by his legions of fans and detested by some professional traders, who believe his pronouncements distort the natural markets for stocks he favors or disdains. While there are those who simply choose to trade with or against the "Mad" guru, Carlotta, a mathematician-turned-daytrader from Salt Lake City has devised a slightfly esoteric Cramer-derivative she calls the Lightning Drowned signal.
"I don't know if there's an echo in his TV studio or if his naturally booming voice somehow makes hearing what's conveyed via his earpiece difficult," she tells me. "But often during his 'Lightning Round' segment, Mr. Cramer completely mis-hears which stock the caller has asked about. He starts talking about the company he thinks was mentioned, while information about a completely different stock flashes across the screen."
Carlotta's studies show that if Cramer gives a Bearish opinion about a stock he thought was mentioned - but wasn't - the "innocent" similar-sounding stock whose symbol was flashed on the screen will likely falter in price for a day or two, after which it bounces back nicely when the small trader "Cramerican" contingent figures out he had no opinion about it after all. Carlotta buys before this "Lightning Drowned" bounce and insists she has made a pretty penny.
9. The Price-Yearning Ratio:  Will, who is based in Milwaukee, is part of a close-knit group of money managers who talk daily and exchange theories and information. Periodically, he sends surveys to these market friends and others, asking them to state as honestly as possible at what price it would be "exceptionally compelling" to buy or to sell certain stocks in which Will has an interest.
He calls the results he receives "Price-Yearning Ratios," points at which conditions would be ideal to start a position or cash one in.  "Of course, the ideal price that potential buyers declare will be about 20 percent too low, while the ideal price for sellers will be high by a similar factor.  That's human nature. But I find the average of answers very helpful in deciding where I should come into or get out of particular securities."
10. Buoy-2: Perhaps the most sensible of odd indicators I've heard about recently comes from Kitty, an institutional investment manager from Trenton. With additional quantitative easing by the Fed - "QE-2" - on everybody's mind - and seemingly, on every commentator's lips - Kitty uses a trading screen she calls the Buoy-2: stock groups, commodities, currencies, and other asset classes which tend to stage rallies whenever there's a strong rumor of new QE measures about to hit.
"Rumors are better than actual events with this screen," Kitty says. "And there certainly have been a lot of rumors lately. I've had terrific success."

Disclosure: No stocks mentioned.