The Hindenburg Omen
Stocks tumbled again Wednesday morning, sending the Dow below 10,000 for the umpteenth time since it first crossed that hallowed level in 1999. Fear in the market is being expressed by the continued rally in Treasuries and widespread chatter about an ominous sounding technical indicator: The Hindenburg Omen.
The Hindenburg Omen has been popping up everywhere in the financial media ever since the myriad of criteria required (see below) to trip the bearish indicator were met on Aug. 12. The Omen garnered another boost in popularity after occurring for a second time on Friday, Aug. 20. The term is gaining in popularity on Google Trends, has made appearances on financial websites ranging from Minyanville to MarketWatch, and even emerged as a topic on local Cincinnati talk radio station 700 WLW. But will The Omen actually deliver doom and gloom?
The Omen has predicted every market crash since 1987, but it has also provided quite a few false positives. According to The Wall Street Journal, "significant stock-market declines have followed only 25% of the time."
The Hindenburg Omen has a roughly 25% accuracy rate, according to The Wall Street Journal, in predicting big market upheaval since 1987, meaning it's far from infallible but isn't inconsequential either. The indicator's creator, mathematician Jim Miekka, compares the Hindenburg Omen to a funnel cloud that precedes a tornado.
"It's like a funnel cloud," Mr. Miekka says. "You don't get a storm with every funnel cloud, but now that we're seeing several funnel clouds, I definitely think I want to stay in the storm cellar."
"It doesn't mean [the market's] going to crash, but it's a high probability," he said.
Complex and esoteric even in the world of technical indicators, the Hindenburg Omen is triggered when the following occurs:-
• -- 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% of total NYSE issues traded that day.
• -- The NYSE's 10-week moving average is rising.
• -- The McClellan Oscillator (a technical measure of "overbought" vs. "oversold" conditions) is negative on that same day.
• -- New 52-week highs cannot be more than twice the new 52-week lows. This condition is absolutely mandatory.
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