A few market pundits recently have been talking about the “Hindenburg Omen” which refers to the ill-fated Hindenburg airship that blew up in NJ back in the 1930s. 

http://en.wikipedia.org/wiki/Hindenburg_Omen

The Omen is a combination of technical indicators showing weakness in the NYSE. The link at Wikipedia provides more information. 

Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines.

Well we have one of the Goodyear blimps moored close by that is next to municipal golf course that we sometimes hack around at.  The whole idea was somewhat interesting.  We decided to take a look at the S&P 500 chart by way of the SPY or SPDR ETF and saw something that may be more ominous.

The chart above shows a yellow 200-day moving average or MA.   We used exponential MA’s but you can use simple or weighted MA’s. The purple line is a 50-day MA.  The green line is the 20-day MA in the Bollinger Band (BB).  We could probably overlay a 100-day MA as well.

So what do we see?  Well, the first thing is the stock price is fighting to stay above the 200-day MA and it keeps failing.  I.E. Not enough buyers to drive prices higher.   Think of buying and selling pressure in the market as a balloon.  You blow air in and if there is not enough pressure blowing in, the air will rush out and the balloon will deflate.   Another analogy is pushing a boulder up a hill.  If you run out of momentum – that boulder is coming back down.  Remember in the market – the trend is your friend.

The next thing is that all the MA lines have converged on top of each other.  This another thing negative.  The final thing is the slope of the lines or back to “the trend is your friend.”  The slope of the 200-day MA is going negative.  How can we tell?  Power Investor has the numbers as you scroll across.  The other MA’s slope is important but not as much as the 200-day MA.  The point is if they are all going negative – think of that boulder rolling back on you.

At this point some people may be thinking – oh come on, you are full of it.   Here is another example.

This is the S&P 500 SPY or SPDRs.  Note the yellow line is the 200-day MA.  The 200-day and even 100-day MA’s are like a hippopotamus. The hippo goes where he wants to go because a hippo in a river can kill a crocodile, he can weigh up to 3 tons and he can run up to 19 mph.  We can see the 200-day heading down in late 200, heading down again in 2008.  The current year we see a run at the end of January 2010 that pulls back.  Another run gets to a peak of about $120 or 1200 on the S&P 500 at the end of April that pulls back.  They a weaker attempt in June 2010 that fails followed by the most recent August 2010 upward move that failed again.

So where are we headed?  The economy is bad and it does not appear to be improving.  The good news for investors is the rest of the world is not in a funk.  Canada, Australia, Brazil, Germany and other countries are doing fairly well. 

We will keep a close watch and the next EWS is coming soon.  If you want to be long stocks, the U.S. is probably not the place to be.  Hedge fund manager George Soros said he was almost totally out of U.S. stocks.

Frank Lardino

Triple Test – The Vocational Schools get whacked

The vocational or private training schools have been hammered.  Companies like Strayer, DeVry, ITT Educational, and Corinthian Colleges to name a few.  What is the problem?  The government may cut funding to industry because students take out loans and cannot pay them back or they bomb out of the schools.  Bomb out like 50% of the people bombing out in those modified mortgages but that is another story.

The students are usually younger people who are on a second chance because the first time they goofed off in school.  The fact that have bombed out the second time is not a surprise.  The reality that they cannot find a job is, “welcome to the club.”  Young people graduating from top universities with huge college loans are hitting the same wall.

So are these schools a waste of taxpayers money?  Probably. Some of these schools work out for some of the students, but it does not for a lot of them.  They sign up, take on a lot of debt and default.  Some of the subjects and training are worthless.

A few countries like Germany do a better job with vocational education with trade school apprenticeships.  The problem in America is everyone has been sold on the idea that everyone must go to college.  Some people are not cut out for it. Colleges came up with soft subjects and lots of loans so many kids get babysat for 4 years at a cost of $120,000 with a “degree” in nothingness.  The parents also deserve some of the blame.

So the alternative is these for-profit trade schools.  Well everybody loved em, especially Strayer Education. They “don’t love em anymore.”  Oh and guess who owns one of these schools.  Wait – the criteria is they can make crazy money, hand over fist. 

OK, you guessed it, Goldman Sachs owns one of them.  In fact, a 26-year old young lady who is now a stripper took out $70,000 in loans for what she calls a “worthless degree” in designing video games.  Oh and guess what?  We know the school, because we know the area.  Investors Alliance had a member seminar back in the mid 1990s at a beachside hotel which hosted 450 members about a mile from the “school.”

So what is the skinny, and we are not referring to the stripper and ex-student?  The school has been the same for the past 30 years.  It is an art school so “draw” your own conclusion.   Oddly, her story gained “exposure” on August 6^th, 2010 right about the time the stocks in the industry crashed.  It looks like she may have “exposed” the industry.

http://www.bloomberg.com/news/2010-08-05/stripper-s-college-degree-profitable-for-goldman-finds-70-000-was-wasted.html

So are they toxic or are they bargains?  It is hard to say.  This seems to happen every 8 to 10 years. The end result is Uncle Sam keeps throwing money at them to try to train some kids who are untrainable.  Why?  Because Uncle Sam’s schools possibly let these kids down in the first place.  These schools are probably cheaper than colleges and jails.

Probably 65% of the kids may be able to get some form of training for a career but the balance may be hopeless or at least very unrealistic.  These for-profit schools are probably just as bad as top colleges offering very soft or feel good majors.  Young people take out huge loans for useless majors and then have no hope of finding a job. If this is not child abuse, then what is?

Which companies may be the best of the bunch?  We took a flyer on a few shares of ITT Education and DeVry.  DeVry has no debt and $323 million in cash.  Their earnings are still holding up but the whole industry may be reviewed now.  ITT is about the same but they have one of the better reputations for these types of “schools.”   Both stocks are Triple Tests right now. 

PLEASE NOTE: This is not an advisory, investment advice or a recommendation.  Do your own analysis.  We think both MAY have a little dead cat bounce of maybe 10%.  And as California IOU Arnuld says in the Terminator 2, after the quick bounce it will be “Hasta la vista baby!”  Or just bye bye!

Frank Lardino