Closing Market Review: Jan. 23rd, 2024

As of yesterday's close the Nasdaq had its third confirmed Hindenburg Omen - the most since November 2021. Last night I created a proprietary Hindenburg Signal to show the magnitude of new highs/new lows divergences rather than as a binary signal. This new indicator checks for instances when new highs are greater than 150 and new lows are simultaneously greater than 150. Then it sums highs + lows and takes the average (mean). The official Hindenburg Omen calculation is somewhat more complicated: See Hindenburg Omen via Investopedia. However, my proprietary signal shows the amplitude of divergence rather than a binary on/off indicator.

As we see below, my new signal - on a backwards looking basis - has correctly timed the correct exit point for momentum stocks twice in the past three years. In November 2021, the signal fired but then the index rebounded and then the signal fired again (red down arrow). This is the scenario we see taking place now:

As far as the overall timing of this rally goes, below we see via the S&P equal weight that this rally is closing in on three months - the length of time the decline lasted. Also, in the lower pane we see that the number of days overbought (> 50 dma) is almost equal to the July top.

In other words the topping process for this rally is very similar to last time.