Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Don't Ignore the Hindenburg Stock Market Crash Omen

Stock-Markets / Financial Crash Jun 07, 2013 - 06:52 PM GMT

By: Money_Morning

Stock-Markets

David Zeiler writes: The Hindenburg Omen-a harbinger of stock market crashes-eerily appeared again last week...and the Dow Jones promptly dropped 205 points. But its appearance brought mostly scorn from the mainstream financial media.

Here are just a few of the headlines from the past week:

"Hindenburg Omen is Just Hot Air"

"Why 'Hindenburg Omen' Is Just a Superstition"


And our personal favorite:

"Hindenburg Omen is idiotic, and if you believe in it, you should lose your right to own stocks-or anything"

Several Wall Street analysts reacted as if even being asked about the Hindenburg Omen offended them.

"Let's not mince words on this subject: This is an example of the worst kind of 'technical analysis' - a market signal essentially designated for media sound bites," Adam Grimes, chief investment officer at Waverly Advisors., told The Wall Street Journal. "The markets may well decline from this point, but they will not do so because of some cleverly named signal. The Hindenburg Omen, we have to say, is mostly hot air."

Nonbelievers in the Hindenburg Omen say it correctly predicts a stock market crash only 25% of the time, and point out the last time it appeared, in 2010, the markets just kept on rising.

"In 2010 the accuracy of the 'Hindenburg Omen' indicator went up in flames and the current situation suggests the same result in 2013," huffed Daryl Guppy on the CNBC Web site.

Yet an appearance by the Hindenburg Omen has preceded every stock market crash but one since 1985, and if you look closely at the numbers this indicator's track record is remarkably accurate.

Maybe the doubters don't know as much as they think they do.

"They call it bogus because they don't understand it," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, who called the Hindenburg Omen one of his favorite indicators.

A Hindenburg Omen Raises the Chances of a Stock Market Crash

The Hindenburg Omen is a complex set of conditions that all must be met for an occurrence to be valid. Take a deep breath:

  • The number of New York Stock Exchange 52-week highs and lows must both be greater than 2.5% of the total issues traded that day.
  • The smaller of the 52-week highs and lows must be greater than or equal to 79.
  • The NYSE's 10-week moving average must be rising.
  • The McClellan Oscillator, a measure of market breadth based on exponential moving averages of advancing and declining stocks, must be negative.
  • The number of 52-week highs cannot be more than twice the number of new 52-week lows.
  • The first occurrence of a Hindenburg Omen must be matched by at least one more within 36 trading days for there to be "confirmation" of the signal.
Once a Hindenburg Omen signal has been confirmed, the probability of a market downturn within the next several months of 5% or greater is 67.8%. Here's the likelihood of progressively more severe drops:

  • Probability of an 8% decline or more: 48.5%;
  • Probability of a panic sell-off of 10% or more: 35.6%;
  • Probability of a full-blown stock market crash of 15% or more: 25.8%.

We've recently had three occurrences (more than two is considered a cluster) of the Hindenburg Omen within 36 days - April 15, May 31 and June 4. The Dow slipped 1.4% yesterday, so the predicted downturn may already be underway.

Why the Hindenburg Omen Works
Fitz-Gerald said many mainstream financial analysts disregard the Hindenburg Omen because they view the stock market through technical goggles. They see the Hindenburg Omen as a flawed technical indicator, but it was never meant to be a technical indicator.

What the Hindenburg Omen measures is market psychology, which Fitz-Gerald said is a primary force in driving the market.

"The mainstream guys are trapped in the ethos of quantifiable economics, so they dismiss it," Fitz-Gerald said. "They're busy assessing the technical merits of an industry fundamentally psychological in nature."

In fact, he said, the Hindenburg Omen has more in common with better-known socio-economic indicators like skirt lengths than the technical indicators that most Wall Street analysts study.

Socio-economic indicators correlate the relationship between human behavior and how the markets are performing, and Fitz-Gerald says they're usually far more accurate than the purely technical indicators most of Wall Street fixates on.

In the case of the Hindenburg Omen, Fitz-Gerald is so impressed with its predictive capabilities that he's developed his own version of it based on proprietary data.

"This stuff is not only real, but if you learn to understand it, it's profitable," Fitz-Gerald said.

Clearly, he's taking the latest occurrence of the Hindenburg Omen seriously, but advised investors not to panic at the possibility of a stock market crash.

"There's no need to run and yell and scream and put your head in the sand," Fitz-Gerald said. "But do be on your guard. Tighten up your trailing stops. Harvest profits. Invest with caution."

If you'd like to see more of Keith's cutting-edge investing ideas, click here.

Source :http://moneymorning.com/2013/06/06/why-you-cant-afford-to-ignore-the-hindenburg-omen/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in