The most feared technical pattern in all of market chartism is the 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 the five criteria that must be met for a Hindenburg trigger typically need to reoccur within 36 days for reconfirmation. The Hindenburg Omen has a roughly 25% accuracy rate in predicting big market upheaval since 1987, meaning that it is wrong 75% of the time. It does not mean that the market is going to crash but that there is a higher probability. It predicts the probability of a move greater than 5% to the downside. The last Hindenburg Omen occurred during the lows of 2009. On August 25th, we just had another (unconfirmed) Hindenburg Omen.
The 5 criteria of the Omen are as follows:
- 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.
- 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.
- That the NYSE 10 Week moving average is rising.
- That the McClellan Oscillator is negative on that same day.
- 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.
For more information contact Richard Taylor.