One objective of this blog is to encourage productive discussion and debate within the "comments" forum. Leaving comments has been made easier. No registration is required. Comments can be left anonymously. A Hassle free and easy forum to leave a comment. However, any inappropriate comments will be deleted by blog administrators. Thank you for commenting so your voice can be heard.

Friday, August 13, 2010

Word(s) of the Day - Hindenburg Omen - Investment Advice?

Have you ever heard the term "Hindenburg Omen"?  Sounds scary doesn't it?

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".

However, the occurrence of a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down, although every NYSE crash since 1985 has been preceded by a Hindenburg Omen.

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":

  1. A substantial number of stocks set new annual highs
  2. A substantial number of stocks set new annual lows
  3. Conditions 1 & 2 cannot both take place at the same time, it is either one or the other—but not both
According to Zero Hedge, 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. It is time to batten down the hatches - something big is coming.

Do with that information what you will.

1 comment:

  1. I hope you are wrong. I've seen my 401 k shrink enough.