Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Is the Hindenburg a Bad Omen?


The Hindenberg Omen is triggered when at least 2.2% of all stocks on the NYSE hit a new high, and also 2.2% or more hit a new low.


The following appeared on the Buzz & Banter earlier today and is reposted here for the benefit of the Minyanville community.

On April 27th of last year, I wrote about a unique divergence in the market, related to the number of stocks making fresh 52-week lows. At the the time, stocks were doing very well, but this divergence was a cause for concern, and indeed the S&P 500 (^SPX) topped out a few days later.

For the past three days, the market has triggered another one of these "market crash" signals, called the Hindenburg Omen. It is triggered when at least 2.2% of all stocks on the NYSE hit a new high, and also 2.2% or more hit a new low - highlighting those times when we have a wide split in breadth. There are a few other parameters that define the signal, but basically it looks for wide divergences in breadth during up-trending markets.

Since 1965, I show 20 other times when two consecutive days trigger this signal. Weakness was pronounced as early as ten trading days later, but by three months later it was at its worst.

The average return in the S&P during that time was -1.9%, with an average drawdown of -8.7% compared to an average maximum gain of +4.9%. There were only two real failures in the past 40 years, 1995 and 1998. The last signal occurred on July 23rd of this year, another successful warning of impending weakness.

Given our inability to rally well off short-term oversold conditions this week, numerous signs of excessive optimism (like among options traders and Rydex traders), and some of these unique breadth warnings, I've toned down my intermediate-term expectations significantly.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos