For readers wondering about my political views, I am an independent voter with conservative leanings. When looking at politics in the context of investment decisions I place the political news in a box and set my personal feelings to the side in order to look at the political machinations with a clear eye and mind while searching for how it will affect the markets. With the invisible hand becoming more pronounced in the Treasury markets it helps to understand and watch how things unfold rather than letting something negatively color your viewpoints and potentially ruin a trade. Politics and investing are like oil and water, they do not mix well and it helps to keep both separated. When they do mix watch how they settle and let Mr. Market do the talking.

Today’s drop on weak economic news triggered the first confirmation of the Hindenburg Omen. The 10 week moving average is still rising, the McClellan Oscillator turned negative, New Highs were above the minimum level and the New Lows just barely beat the minimum of 69 new lows by 1 with 70 New Lows on the day. Both New Highs and New Lows were above the minimum and the New Highs were not twice the New Lows.

While the Hindenburg Omen does not guarantee a stock market crash the closer they signals are together and the number of signals should send a warning to investors. That said, I will repeat what I said earlier this week:

“While a Hindenburg Omen does not mean the market will crash it is a signal that a fat tail event may be approaching in terms of a market pullback.

It is not my belief that we are heading for a second stock market crash but investors should tighten stops on long positions and/or hedge long positions until the danger passes.

The underlying market weakness following Wednesday’s drop combined with weak economic reports should give investors pause. The inability of the market to move higher indicates a lack of buyers as investors seem to be waiting on the sidelines.

Now there is good news to report. This drop, should it occur, would put in a major low for the four year Presidential cycle leading to a solid rally into 2011. In other words, protect your long positions and get your cash ready to allocate so you can buy at the bottom.”

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