Hindenburg omen

gordongekko

Experienced technical analysts have been sent into a tizzy recently with the appearance of one of the most ominous and highly technical indicators, the Hindenburg Omen. The indicator is named after the 1937 German airship disaster of the Hindenburg flight, which inexplicably burst into flames and plunged to the ground in disaster.

In stock market terms, the Hindenburg Omen is a combination of technical signals that together forecast the likelihood of a stock market crash. There are four signals: the 10-week Moving Average, the number of 52-week highs on the NYSE, the number of 52-week lows on the NYSE and the McClellan Oscillator, which is the difference between the number of stocks rising and falling. If, on the same day, the 10-week MA is rising, the number of new 52-week highs and lows are both above 2.2% and the McClellan Oscillator is negative, then a Hindenburg Signal is triggered. If two Hindenburg Signals are observed inside 36 days, then a Hindenburg Omen is said to have occurred.

Broadly, the thinking behind the Omen is that if a rallying stock market repeatedly has as many year-lows as year-highs on a single day, then traders are having a tough time valuing an uncertain market, and a fiery crash may be imminent.

The Omen has gained something of a cult following amongst some investors, and believers point to the cluster of Omens at the peak of the 2007 and 2001 markets. Indeed, Bloomberg are sufficiently engaged that they have produced a Hindenburg chart, shown below, which shows Hindenburg Signals and Omens alongside the NYSE Composite Index. Yellow dots are used to denote Signals and red dots to signal Omens. What’s causing the present stir is that, so far this year, a cluster of 6 Hindenburg Omens (red dots) have already occurred.

Despite its notoriety, however, many dismiss the Omen as an outdated fad, pointing to the number of modern-day securities traded on the NYSE which are fixed income or commodity linked ETFs. They claim that these these securities making new lows and triggering Hindenburg Signals has no bearing on the direction of the US equity market whatsoever.


Got sent this in an email. So I don't have a link to original writer.

Value Hunter

Was reading about this in June in investor Chronicle, jist of it was they were saying it was a bogus indicator, i.e if you study deeply enough about crashes and you'll be bound to find some common demoninators

Will try find a link

Value Hunter

http://www.investorschronicle.co.uk/2013/06/13/comment/the-trader/sensationalist-diversions-GocrzzRKqif9iuvbvPY7pO/article.html

Best I could find it requires subscription to view the entire article