In the past couple of weeks there has been a lot of talk in the media about the Hindenburg Omen. This omen is a technical anomaly in the stock market that potentially signals a severe down move in the not too distant future. It got its name from the German airship, the Hindenburg, that burst into flames and crashed in the late 1930’s. Jim Miekka, the blind mathematical whiz that created this omen, confirmed that as of August 12th a Hindenburg trigger had occurred. Investors and traders are scared; should you be?
There are 5 complex technical criteria that make up the Hindenburg Omen. These criteria occur when there are an unusually high number of companies in the New York Stock Exchange that reach 52 week highs and lows at the same time. This scenario is a result of severe uncertainty and confusion; 2 things that the market is suffering from right now.
However, running to sell all of your stock right now is premature. History tells that it takes at least 2 Hindenburg Omens occurring within 36 days to potentially trigger a significant down move in the stock market. Some even claim that it requires 3 – 5 Hindenburg events to signal that we’re headed lower. In 2008, the Omen signaled 7 times before the S&P crashed. As of August 23rd 2010 we’ve seen the Omen occur only once.
Within the past few decades there have been plenty of times when the Omen occurred and were nothing more than false alarms. Art Cashin, head of floor operations at UBS, stated on CNBC, “Though we have never had a large sell-off without at Hindenburg Omen, we’ve had Hindenburg Omens without a sell-off.”
However, a serious concern is that with all the media attention this technical anomaly has gotten, and continues to receive, the Hindenburg Omen could be a self-fulfilling prophecy; if enough people are scared into thinking the sky is falling they could all pull their money out of the market and a market crash could ensue. Lucky for us it’s August and the masses aren’t paying too much attention to the stock market.
Don’t make any rash decisions and keep a close eye on the markets. These next few weeks will be crucial; if the market can make it to mid-September without another Hindenburg Omen being triggered we will know that August 12th was a false alarm. If another trigger does occur make sure you monitor your portfolio. Not only do I want you to protect your personal wealth but if the market does crash there will be many opportunities for us make a lot of money.