I got a call today from investment advisors asking if I heard about the Hindenburg Omen. Never a good sign.
The Hindenburg Omen is a technical analysis pattern that is said to portend a stock market crash. It is named after the Hindenburg disaster of May 6, 1937, during which the German zeppelin Hindenburg was destroyed.
Sounds like an Indian Jones movie right? It is not nearly so entertaining. The main goal of the indicator is to determine if a higher overall probability exists such that a stock market crash has a higher likelihood than normal. Yes I said "CRASH".
The Hindenburg Omen is the alignment of several technical factors that measure the underlying condition of the stock market—specifically the NYSE. The general rationale behind the indicator is that "under normal conditions":
- A substantial number of stocks set new annual highs
- A substantial number of stocks set new annual lows
- Conditions 1 & 2 cannot both take place at the same time, it is either one or the other—but not both
Do with that information what you will.