The Hindenburg Omen is a set of market characteristics that some believe predict a major market crash. Named after a zeppelin disaster, it indicates faltering investor confidence and can be a red flag for nervous investors. Once identified, investors closely watch the market for the next 30 days.
The Hindenburg omen is a series of market characteristics that some people believe herald a major market crash. Mathematician Jim Miekka developed the criteria, and Hindenburg’s omen can be very accurate in some cases. The financial media can report when conditions meet the criteria and will take note of any changes in the market following the announcement. This is just one of the many metrics that investors can use to predict market movements.
According to advocates of Hindenburg’s omen, the characteristics indicate a change in consumer confidence, which may precede a crisis in the market. The omen is named after a famous zeppelin disaster that occurred in the 1930s, when the German airship Hindenburg crashed in a fiery explosion in New Jersey. The name implies that the market can quickly catch fire when certain conditions occur.
Statistics from the New York Stock Exchange form the basis of the criteria. All must occur on the same day for the Hindenburg Omen to be in play. The first is that at least 2.2 of the listed stocks must be making new highs and lows, reflecting positive and negative activity. The new highs cannot be more than twice the new lows; If 10% of stocks are hitting new highs and 3% are hitting new lows, the criteria for Hindenburg’s omen are no longer met. Also, the 10-week moving average for the market should be on the rise. Finally, the McClellan oscillator, a metric for determining overbought and oversold stocks, should be negative.
Together, these criteria suggest faltering investor confidence. Even for investors who don’t take Hindenburg’s omen as the final authority, it can be a red flag. When trading activity is mixed in this way, investors can be nervous and prone to panic. A major market event or big political news could send the market into turmoil and send market values plummeting as investors vie for position.
Once the Hindenburg Omen is identified, investors will closely watch the market over the next 30 days to see if it breaks out of the pattern, fails to meet the criteria, or continues to move in dangerous ways. Investors can reposition themselves to take advantage of market dips, or they can move investments to get their money into safer locations, such as out of volatile stocks and into stable government securities. This can create a snowball effect, as investors panic over Hindenburg’s omen and create the market conditions they fear.
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