The Hindenburg Omen is a technical analysis thing that some people think portends a stock market crash.
From Wikipedia:
The Hindenburg Omen is a combination of technical factors that attempt to measure the health of the NYSE, and by extension, the stock market as a whole. The goal of the indicator is to signal increased probability of a stock market crash.And the critera are:
The rationale is that under "normal conditions" a substantial number of stocks may set either new annual highs or new annual lows, but not both at the same time. As a healthy market possesses a degree of uniformity, whether up or down, the simultaneous presence of many new highs and lows may signal trouble.
Theoretically, the Hindenburg Omen could be applied to any stock exchange. However, some minor alterations to the omen might be needed to achieve similar results.
The daily number of NYSE new 52 week highs and the daily number of new 52 week lows are both greater than or equal to 2.8 percent (this is typically about 84 stocks) of the sum of NYSE issues that advance or decline that day (typically, around 3000).2 An older version of the indicator used a threshold of 2.5 percent of total issues traded (approximately 80 of 3200 in today's market).According to Jonathan Krinsky, a technical analyst at Miller Tabak, the omen has appeared!
The NYSE index is greater in value than it was 50 trading days ago. Originally, this was expressed as a rising 10 week moving average, but the new rule is more relevant to the daily data used to look at new highs and lows.
The McClellan Oscillator is negative on the same day.
New 52 week highs cannot be more than twice the new 52 week lows (though new 52 week lows may be more than double new highs).
In a note that went out to clients just an hour ago, he wrote:
The Theory then goes like this:
Two such signals within a 36-day period is consider ed a Hindenburg Omen. The Hindenburg Omen portends a serious decline within the next 40 days . (note: the 36 day period is somewhat ambiguous, as we have seen some say it is a 30 day period, and some say it must be 30 calendar vs. 30 business days).
Let's look at the first "observation" that occurred on April 15 th of this year.
1) NYSE New 52 Week Highs = 70 , New Lows = 77 . Both exceeded 2.2% of total issues that day.
2) The 10 Week (50 Day) Moving Average Was Rising
3) The McClellan Oscillator was negative
4) New 52 Week highs were NOT more than twice 52 week Lows
All 4 criteria were met.
Now on Wednesday, May 29 th , we got a second "observation", which creates the confirmation of the Omen.
1) NYSE New Highs = 58 , New Lows = 104 . Both exceeded 2.2% of total issues that day
2) The 10 Week (50 Day) Moving Average Was Rising
3) The McClellan Oscillator was negative
4) New 52 Week highs were NOT more than twice 52 week Lows
Heard this mentioned and saw elsewhere, that this same signal showed up a couple times in recent years, without too much ado, so not a real problem, but the simple fact that almost every trader seems to expect a retracement of some kind is a bigger signal. Some have talked about the lack of any real 'dip' or retest since this latest breakout to new highs, but it seems almost everyone is asking about it these days and Mr B might need to cool his forced duck feeding a little bit to allow a small decline in the market so as not to scare everyone off of continuing the game later. This is simple expectations of some little bit of reality to the markets these days, as reality seems to have jumped out the window long ago and is no where to be found in financial circles these days. Of course, political circles lost contact long, long ago, and no one any longer expects such a thing from them, but in the world of money, traders thought they knew the score after years and years of enduring the markets ride in recent years, only to wake up and realize that they are floating in the sky without parachutes and Uncle Ben is telling them they can fly.
Well, Uncle Ben might be a magician who can fly, but not most traders who feel the wind and not the ground beneath their feet and they don't like it one bit, though hold the nose and continue to ride the Beast from Ben as long as they can, they will do with just a hint of hesitation. They just want a reality check of some kind, just a little bit, and unless Magical Ben plans on leaving town sooner than thought, he better 'throw them a bone' to chew on.