Hindenburg Omens: Technical Indicator Warns of Imminent Stock Market Crash
A well respected technical indicator known as the ‘Hindenburg Omen’ is flashing a big red warning sign that a significant market sell off – even a market crash – could be imminent.
The Hindenburg Omen, named after the Hindenburg disaster in the 1930s, is a technical analysis pattern which has a strong history of successfully predicting market crashes. According to Wikipedia:
From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77% [The Wall Street Journal 8/23/2010 article cited below states that accuracy is 25%, looking at period from 1985], and usually takes place within the next forty days. The probability of a panic sell-out was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines.
With a track record like that investors should sit up and take note when analysts report the biggest cluster of Hindenburg Omens on record. Although the appearance of a Hindenburg signal does not necessarily indicate a market sell-off, the more occurrences cluster together in a short space of time the more likely it is that there will be a significant correction….