The Dawes Premonition
By Dan Denning
TheDailyReckoning.comAugust 24th, 2010
When a blind mathematician exits the market because an ominous technical omen indicates a crash ahead, what do you make of it?
Last week the whole internet was abuzz with the phrase “The Hindenburg Omen.” The “Omen” is actually a convergence of technical and momentum indicators which, when sighted, usually leads to a big market correction. Its creator Jim Miekka has used it to forecast major market tipping points. And this week, Miekka told the Wall Street Journal he had heeded the warning and was out of the market completely.
Miekka is right that September is historically a lousy month for stocks. Just why this has been the case is disputable. Is it well-rested and tanned North Atlantic fund managers getting back behind the desk and putting their brain in a psychologically defensive mode as the autumn and the winter approach? Is it cyclical? Is it random? Is it aliens?
Add to the Hindenburg Omen the “Dawes Premonition.” Writing over in Money Morning today, Dawes (the editor of Slipstream Trader) concludes:
The weekly charts show a market that has crashed between 2007-2009 and then turned and rallied to the 50% Fibonacci level of 5000 over 2009-April 2010.
We are now at the point where the bear market rally is looking dead and buried and a resumption of the downtrend is about to occur.
The long term trend has already turned down in May when the 35 day MA crossed with the 200 day MA. The rally of the past month saw an intermediate uptrend in place which is on the edge of failing with the 10 day MA about to cross with the 35 day MA to the downside.
Therefore we are about to see all trends aligned, from the short term to the long term trend and they are all pointing down.
The distribution of the past year is looking very tired and another retest of the c.4200 lows in the ASX 200 is going to crack. That will give immediate targets to c.3900. And below there it looks very scary indeed.
If the market does crack under this 4,400 level then I wouldn’t be surprised to see the market swan dive to 3,900 in a matter of weeks.
What about days? Today’s opening hasn’t been so flash. And with the news on the political scene getting increasingly bizarre – a unity government with Tony Abbot as Prime Minister and Kevin Rudd as a front-bencher and Foreign Minister – investors might start to get a bit nervous about what the political class is up to.