The Hindenburg Omen – Why some fear a big drop in the Stock Market

The Hindenburg OmenThe Hindenburg Omen is an indicator of possible trouble coming in the Stock Market. Every New York Stock Exchange crash since 1985 has been preceeded by The Hindenburg Omen indicator. The Hindenburg Omen is a logical indicator. If there are more than 73 stocks making a new 52-week high on the same day there are 73 stocks or more making a new 52-week low, it is considered to be a confirmed Hindenburg Omen. The rationale: under “normal market conditions” a large number of stocks may set either new annual highs or new annual lows, but there shouldn’t be a large number of both at the same time. A healthy market should have a degree of uniformity, whether up or down, the simultaneous presence of new highs and lows in large quantity may be a signal of trouble.

Of course, it doesn’t work 100% of the time. Historically speaking, the probability of a downward move greater than 5% after a The Hindenburg Omen indicator is confirmed was 77% (since 1985).  This is based on giving 40 days for that decline to take place. The probability of a ‘panic’ sell-off was 41% and the probability of a major crash was 24%. The Hindenburg Omen can be a scary thing for Stock Market Investors based on what’s happened in the past. Of the previous 25 Omen confirmations, only two have failed to predict at least a mild decline (2.0% to 4.9%).

Today, the Stock Market pushed higher without fail. That might be the most concerning item of all. We are well 0ver-due for a correction to the downside and I sure hope you are allocated for risk in your investments and retirement accounts.

Other topics discussed today:
– Ben Bernanke cracks a joke at Princeton Commencement Speech. I’m not laughing.
– Starbucks takes a stand against smokers
– Fannie Mae makes more money than the entire Banking sector last quarter
– A Federal Judge orders Google to hand over it’s customer info to the FBI

Listen to today’s podcast here: 

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