Hindenburg Stock Market Crash Omen is Nonsense Says BubbleOmics

By: Andrew_Butter

Apparently there has been another Hindenburg Omen sighted, and apparently also one of those has preceded every US stock market crash since 1985.

Robert McHugh has a table that proves that: http://www.marketoracle.co.uk/Article22097.html

I’m a bit confused by the last entry which says that the first new set of Omens started in December 2008 and there wasn’t a crash since then. Well actually the DJIA went down 22% from then, but perhaps that was just a “correction”.

This is a chart comparing the numbers of Omens sighted with the final decline, using the data provided by McHugh (and the alternate).:

There is no correlation at all, although the shape of the “best-fit” appears to suggest that if no Hindenburg Omens are sighted the likely size of the crash that follows will tend towards infinity.

Plotting that data another way:

OK 44% R-Squared is not nothing; but it’s not a lot.

But if you buy the idea that the decline of 22% from December 2008 to March 2009 was a separate “crash”, then since then one Omen has been sighted, just recently (apparently none were sighted before the recent 16% decline), so  “well we just had a “sighting” so it’s pretty unlikely there will be a crash of more than 20% for at least two months, if that is a valid predictor.

Another explanation is that the Omen is just a load of Mumbo-Jumbo.

Markets crash precipitously when they are in a bubble, that’s when the price is above the fundamental value (International Valuation Standards Calls that Other Than Market Value).

Here’s another way of looking at that:

The explanation for why that works is at:

http://www.marketoracle.co.uk/Article10604.html
http://www.marketoracle.co.uk/Article9131.html
http://www.marketoracle.co.uk/Article12114.html

That logic (called Bubbleomics) predicted (like in advance):

1: S&P 500 would bottom at 675
2: Then it would bounce
3: All the way until it reached 1200
4: Then it would go down 15% to 20%.

Oh and by the way, there were only FOUR predictions; i.e. four out of four.

The same logic says about the impending “mother of all crashes” to dwarf all crashes:

“Don’t be so silly”!

By Andrew Butter

Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

© 2010 Copyright Andrew Butter- All Rights Reserved
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