Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
5 Ways to Beat the Fed (and Crush Inflation)

Email this Article

Send with mail | ahoo instead.
Required Needs to be a valid email
Required Needs to be a valid email
Why You Can't Afford to Ignore the Hindenburg Omen
http://mney.co/1HNbuft
Required Please enter the correct value.
Twitter

Why You Can't Afford to Ignore the Hindenburg Omen

By David Zeiler, Associate Editor, Money Morning • @DavidGZeiler • June 6, 2013

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

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:

  • 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."

Join the conversation. Click here to jump to comments…

David ZeilerDavid Zeiler

About the Author

Browse David's articles | View David's research services

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

… Read full bio

Login
guest
guest
0 Comments
Inline Feedbacks
View all comments
LIVE
Visit Money Morning Live


Latest News

March 29, 2023 • By Chris Johnson

Commercial Real Estate is Feeling the Aftershocks of the Financial Crisis

March 29, 2023 • By Kenny Glick

Here's How You Can Find a New Trade If You Just Missed Your Entry

March 29, 2023 • By Garrett Baldwin

It's Not You... It's the Market
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover This Is VWAP Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Warlock's World Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Flashpoint Trader Darknet Hyper Momentum Trader Alpha Accelerators Weekly Profit Cycles Brutus Alerts

© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz