Currently, Stock Markets Of The World Show Little Fear…But Maybe They Should!

Posted By on August 13, 2013

Why, you say….

It’s the dreaded Hindenburg Omen!

“The Hindenburg Omen is a technical analysis that attempts to predict a forthcoming stock market crash. It is named after the Hindenburg disaster of May 6th 1937, during which the German zeppelin was destroyed in a sudden conflagration.”

The Hindenburg Omen is not a guarantee of a crash, and  five criteria must be met for a Hindenburg trigger, and 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. It is time to batten down the hatches – something big is coming.

Here are the 5 criteria of the Omen 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 condition is absolutely mandatory.

Today, all five conditions were satisfied.  June 2008 was another such reconfirmed event.   Barron’s pointed out then, “there’s a 25% probability of a full-blown stock-market crash in the next 120 days….

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