Hindenburg Omen and 1987 Crash Correlation Could Spook the Stock Market (Art Cashin, Carter Worth, Marc Faber on CNBC) $SPX $VIX $VVIX

It appears that extremely bearish views are starting to spread on CNBC. On Monday, Art Cashin, UBS Director of Floor Operations at the NYSE, said: "the last time we had five Hindenburgs in a compressed time like that was in November of 2007 and in the very beginning of the year 2000, when the dot com bubble was..."

Carter Worth, Chief Market Technician at Oppenheimer, put up a chart which showed an almost perfect correlation between the August 2011-August 2013 stock market rally and the August 1985-September 1987 rally (and crash). Back in 1987, the stock market peaked in August, bounced around in September, and crashed in October (see footage and congressional hearings). Here is Carter Worth's chart from the video.

source: CNBC.com (via Carter Worth)

But it's interesting that the VIX, the S&P's volatility index or fear gauge via its options prices, is not seeing doom in the near-term. At 12.31, the VIX is still bouncing around the 4-year low. But I see that the VIX's VIX (VVIX) is starting to diverge with the VIX a little bit. The same thing happened in March, and actually the VIX moved up a few points and the market pulled back after I pointed that out. But it didn't really mean much directionally for the S&P or the VIX (onlyvix explained this on my blog). The divergence was also much bigger in March than today.

In summary, I'd say protect against, or prepare to protect against the highly probable possibility of market volatility and downside in the next few months. (Recent related post: $SPX Still Following 1995-2000 Trajectory; RSI Getting Overheated But Not in 1990s Terms.) According to the Barron's blog Focus on Funds, J.P. Morgan strategist Marko Kolanovic said: "We expect an increase in equity realized volatility and the VIX in September and October on account of the Fed meeting, developments in Europe (e.g. German elections), and US debt ceiling/Continuing Resolution." So there you go. But is Tom Lee bearish?

2 year chart of the VIX (source: stockcharts.com)

VVIX vs. VIX vs. the S&P since June/July 2013 (source: tradingview.com)
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