Hindenburg omen triggered last week.

[Svenwulf]

i think clavo was interested in this, but i cant find a thread. i still say we make new highs in a few weeks, and 15k dow or more before jan 2nd, 2008.

October 28, 2007- Market Summary
In our last report, we mentioned that the major indexes experienced a sharp drop on the anniversary of Black Monday (http://www.investopedia.com/terms/b/blackmonday.asp) (October 19). The good news for the bulls is that they were able to recoup the majority of the previous week's losses, thanks to impressive earnings from Microsoft (Nasdaq:MSFT (http://www.investopedia.com/terms/b/blackmonday.asp)) and a positive outlook from Countrywide Financial (NYSE:CFC (http://research.investopedia.com/q.aspx?s=cfc)). At first glance, it may seem that this news is the catalyst the markets need to spur a move higher, but one interesting technical indicator is suggesting that the markets may actually be setting up for a significant move lower. The Hindenburg omen (http://www.investopedia.com/terms/h/HindenburgOmen.asp) is a relatively uncommon indicator, but it should not be easily dismissed. This indicator is named after the after the German airship and has become synonymous with the word 'crash'. This tool uses market breadth (http://www.investopedia.com/terms/b/breadthofmarkettheory.asp) theories to determine when there is a disparity between new highs and lows. A large divergence in highs and lows suggests that conviction of market participants is weakening and that they are unsure of the market's future direction.
This indicator gives a warning when more than 2.2% of the traded issues in the NYSE composite index (http://www.investopedia.com/terms/n/nysecompositeindex.asp) are creating new highs while a separate 2.2% are creating new lows. On Friday there were 259 new highs, which equates to 7.6% of the traded issues (3,407). Also, there were 99 new lows, which equates to 2.9% of the traded issues. Readings above 2.2%, which occurred on Thursday and Friday, is the first sign of a valid Hindenburg omen, but it should be noted that many short-term traders will wait for a few other confirming indicators before taking a position.

[englishman26]

I have a feeling that this market condition occurs considerably more often than market crashes do even if perhaps the principle might have some logical sense and might end up being proven correct in a small percentage of cases. So I expect it's more of an "even a broken clock is right twice a day" measure, than a functioning clock (predictor).

In practice, market volatility leads as often to breaks upwards as to breaks downwards.

[Albert0373]

Interesting, I never heard about it. Thanks for bringing it up

[netwrangler]

i think clavo was interested in this, but i cant find a thread. i still say we make new highs in a few weeks, and 15k dow or more before jan 2nd, 2008.

October 28, 2007- Market Summary
In our last report, we mentioned that the major indexes experienced a sharp drop on the anniversary of Black Monday (http://www.investopedia.com/terms/b/blackmonday.asp) (October 19). The good news for the bulls is that they were able to recoup the majority of the previous week's losses, thanks to impressive earnings from Microsoft (Nasdaq:MSFT (http://www.investopedia.com/terms/b/blackmonday.asp)) and a positive outlook from Countrywide Financial (NYSE:CFC (http://research.investopedia.com/q.aspx?s=cfc)). At first glance, it may seem that this news is the catalyst the markets need to spur a move higher, but one interesting technical indicator is suggesting that the markets may actually be setting up for a significant move lower. The Hindenburg omen (http://www.investopedia.com/terms/h/HindenburgOmen.asp) is a relatively uncommon indicator, but it should not be easily dismissed. This indicator is named after the after the German airship and has become synonymous with the word 'crash'. This tool uses market breadth (http://www.investopedia.com/terms/b/breadthofmarkettheory.asp) theories to determine when there is a disparity between new highs and lows. A large divergence in highs and lows suggests that conviction of market participants is weakening and that they are unsure of the market's future direction.
This indicator gives a warning when more than 2.2% of the traded issues in the NYSE composite index (http://www.investopedia.com/terms/n/nysecompositeindex.asp) are creating new highs while a separate 2.2% are creating new lows. On Friday there were 259 new highs, which equates to 7.6% of the traded issues (3,407). Also, there were 99 new lows, which equates to 2.9% of the traded issues. Readings above 2.2%, which occurred on Thursday and Friday, is the first sign of a valid Hindenburg omen, but it should be noted that many short-term traders will wait for a few other confirming indicators before taking a position. I wonder if the ratio of new highs to new lows is significant. The definition said >2.2% on either end. We have better than a 3.4/1 ratio favoring the highs, according to the quoted numbers. Seems like that wouldn't correlate the same as an even number of each, or a reversed ratio.

Just some top-of-the-head thoughts with no data to support them. Interesting thread, SvenW.

[Albert0373]

Looked around and found this on wikipedia:

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 fine 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. 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.

[edit] Conclusions

The probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen within the next 41 days after its occurrence is 77%, the probability of a panic sellout is 41% and the probability of a major stock market crash is 25%. The occurrence of a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down, although every NYSE crash since 1985 has been preceded by a Hindenberg Omen.


Past performance of the Hindenburg Omen crash signals 1985-2000:
http://www.safehaven.com/showarticle.cfm?id=3880

[Albert0373]

Hmm, from the list of criteria:

That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.

From Sven's post, there was 259 new highs and 99 new lows, a ratio of 2.6 : 1

You're right Wrangler, ratio does play a key part; would make sense too.

[netwrangler]

Thanks for the due diligence. :wink: