Oh, the Humanity! The Hindenburg Omen in the Stock Market

Friday, 13 Aug 2010 03:16 PM

 

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Sometimes technical indicators seem named just to see how much fear they can provoke.

Take the "Hindenburg Omen," an indicator that depends on a number of variables that was triggered on Thursday in the stock market, portending a sharp correction in coming months.

Named after the zeppelin disaster that took place over Lakehurst, N.J., in 1937, the pattern is a "rare but potent" sell signal, said Jay Shartsis, director of option trading at R.F. Lafferty & Co.

For this to be activated, it requires at least 2.2 percent of the market to reach new 52-week highs and 52-week lows on the New York Stock Exchange on the same day, which happened Thursday, suggesting a lack of conviction among investors.

However, it also needs to happen in a rising market, based on certain indicators, including a 10-week moving average of the NYSE Composite, which has to be rising.

Shartsis said the indicator "speaks for itself," noting that when confirmed by a second occurrence within 36 days, "every crash (since 1985) was preceded by such a signal."

Other strategists said they hadn't heard of the indicator, which has been discussed on financial blogs during Friday's trading.

© 2014 Thomson/Reuters. All rights reserved.

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