The Hindenburg Omen is a technical analysis signal that attempts to predict a forthcoming stock market crash. It is named after the Hindenburg disaster, the crash of the German zeppelin of the same name in May 1937. Technical analysis, also known as charting, is the study of the trading history (the price and volume over time) of any type of traded security (stocks, commodities, etc. ... Black Monday (1987) on the Dow Jones Industrial Average A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a market. ... LZ 129 Hindenburg was a German zeppelin that was destroyed by fire while landing at Lakehurst Naval Air Station in New Jersey on May 6, 1937. ... Painting of the famous Zeppelin Hindenburg. ...

The Hindenburg Omen is the alignment of several technical factors that measure the underlying condition of the stock market - specifically the NYSE - such that the probability that a stock market crash occurs is higher than normal, and the probability of a severe decline is quite high. The rationale behind the indicator is that, under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows - but not both. When both new highs and new lows are large, it indicates the stock market is undergoing a period of extreme divergence. Such divergence is not usually conducive to future rising prices. A healthy market requires some degree of internal uniformity, whether the direction of that uniformity is up or down. New York Stock Exchange (June 2003) The New York Stock Exchange (NYSE) is one of the largest stock exchanges in the world. ... Black Monday (1987) on the Dow Jones Industrial Average A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a market. ... The New York Stock Exchange A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ...

Origins

The origins of this potential stock market crash signal can be traced back to the work of Norman Fosback, author of Stock Market Logic, first published in 1976. Fosback did research on share price highs and lows and developed the first version of the indicator, although it differed from the one used at present. Credit for discovery of the Omen is given to Jim Miekka who wrote a report called the Sudbury Bull and Bear Report. Miekka derived the indicator from a New High - New Low methodology developed by Gerald Appel many years before. Miekka's friend Kennedy Gammage suggested to Miekka that the indicator be dubbed the Hindenburg Omen after the ill-fated zeppelin doomed to crash. Black Monday (1987) on the Dow Jones Industrial Average A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a market. ... 1976 (MCMLXXVI) was a leap year starting on Thursday. ... Painting of the famous Zeppelin Hindenburg. ...

Criteria

The traditional definition of a Hindenburg Omen has five criteria:

• That 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 percent of total NYSE issues traded that day.
• That the smaller of these numbers is greater than 79.
• That the NYSE 10 Week moving average is rising.
• That the McClellan Oscillator is negative on that same day.
• That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is ok for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.

These measures are calculated each evening using Wall Street Journal figures for consistency. New York Stock Exchange (June 2003) The New York Stock Exchange (NYSE) is one of the largest stock exchanges in the world. ... New York Stock Exchange (June 2003) The New York Stock Exchange (NYSE) is one of the largest stock exchanges in the world. ... New York Stock Exchange (June 2003) The New York Stock Exchange (NYSE) is one of the largest stock exchanges in the world. ... A moving average, in finance and especially in technical analysis, is one of a family of similar statistical techniques used to analyze time series data. ...

The occurrence of all five criteria on one day is often referred to as an unconfirmed Hindenburg Omen.

A confirmed Hindenburg Omen occurs if a second (or more) Hindenburg Omen signals occur during a 36-day period from the first signal.

Conclusions

The probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen within the next 41 days after its occurence is 77%, the probability of a panic sellout is 41% and the probability of a real big stock market crash is 25%.

The occurence of a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down. On the other hand there has never been a significant stock market decline in history, that was not preceeded by a confirmed Hindenburg Omen.

External link

• The Past Performance of the Hindenburg Omen Stock Market Crash Signals 1985 - 2005