The Hindenburg Omen IS Scary, but So Are the Fundamentals
Another down day on Wall Street Thursday sent the Dow below 10,000 for the first time since early July. 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 a roughly 25% accuracy rate 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 in a recent interview with The WSJ. "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, Zero Hedge reports:
-- 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.
These criteria have been hit twice since Aug. 12, prompting Miekka to get out of the market entirely, The WSJ reports. Judging by the recent market action, many others are following suit -- or at least moving in the same direction.