Hindenburg Alarm: Another Rotation Or Worse?

Via RealInvestmentAdvice.com,

In early November, we sounded the alarm about a recent Hindenburg Omen. Per the Commentary’s summary:

Bottom line: market breadth is horrendous and will likely lead to a rotation favoring out-of-favor sectors and stocks.

Thus, it’s not surprising that the Hindenburg Omen was triggered. If we continue to see more of these Omens, the threat of a drawdown grows.

At the time, Mega-Cap stocks were grossly outperforming the market, while many sectors lagged the market.

Since that Hindenburg Alarm, our expectations have come to fruition. We have, in fact, seen a “rotation favoring out-of-favor sectors and stocks.”

The graphic below, courtesy of SimpleVisor, shows the significant change in fortunes between sectors.

The first column shows each sector’s excess returns (vs. the S&P 500) since the Hindenburg Omen on October 29th.

The second column shows the excess returns over the 50-day period preceding the alarm.

The Hindenburg Omen has sent 6 alarms over the last month.

The last batch of Hindenburg alarms signaled drawdowns in the leaders and strong performance in the laggards.

Is this Hindenburg Alarm signaling a rotation back to large-cap growth?

Or might it be more ominous for the entire market?

The last time this technical indicator triggered six times in a month was preceding the Pandemic crash of 2020.