Friday

Stocks

What is a Hindenburg Omen?

We got a Hindenburg Omen 12 August 2010. An technical indicator feared by many bulls. All criteria were met. Hindenburg Omen is a technical analysis that predicts an impending stock market crash. Hindenburg Omens are rare, since it has a long list of criteria on both extremes of bullishness and bearishness. There have only been 27 confirmed Hindenburg Omens over the past 25 years. Note we have not had a confirmed a Hindenburg Omen yet - confirmation requires the criteria to be met again within 36 days. This has not occurred. So what if we have a Hindenburg? Statistically, the probability of a move down greater than 5% is 77% within the next 40 days of a confirmed HO. Every stock market crash since 1985 has had a prior confirmed HO. Given we have an unconfirmed HO, we should NOT get carried away shorting (yet).

The Hindenburg Omen criteria are as follows:

1. That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.
2. That the smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.
3. That the NYSE 10 Week moving average is rising.
4. That the McClellan Oscillator is negative on that same day.
5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This is a mandatory condition.

It is named after the Hindenburg disaster of May 6th 1937, during which the German zeppelin was destroyed in a sudden conflagration.” Granted, the Hindenburg Omen is not a guarantee of a crash, and the five criteria that must be met for a Hindenburg trigger typically need to reoccur within 36 days for reconfirmation. Yet the statistics are startling: “Looking back at historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and usually takes place within the next forty-days.” The last Hindenburg Omen occurred during the lows of 2009. Today, we just had another (unconfirmed) Hindenburg Omen.

Heres all previous Hindenburg Omens since 1985:

Date of first
Hindenburg
Omen Signal # of Signals
In Cluster DJIA
Subsequent
% Decline Time Until
Decline
Bottomed 9/21/2005 5 ? ? 4/13/2004 (1) 5 5.4% 30 days 6/20/2002 5 15.8% 30 days 23.9% 112 days 6/20/2001 2 25.5% 93 days 3/12/2001 4 11.4% 11 days 9/15/2000 9 12.4% 33 days 7/26/2000 3 9.0% 83 days 1/24/2000 6 34.2% 44 days 6/15/1999 2 6.7% 122 days 12/22/1998 (2) 2 0.2% 1 day 7/21/1998 (3) 1 19.7% 41 days 12/11/1997 11 5.8% 32 days 6/12/1996 3 8.8% 34 days 10/09/1995 6 1.7% 1 day 9/19/1994 7 8.2% 65 days 1/25/1994 14 9.6% 69 days 11/03/1993 3 2.1% 2 days 12/02/1991 9 3.5% 7 days 6/27/1990 17 16.3% 91 days 11/01/1989 36 5.0% 91 days 10/11/1989 2 10.0% 5 days 9/14/1987 5 38.2% 36 days 7/14/1986 9 3.6% 21 days