The Hindenburg Omen: Crash Signal In Play

Hindenburg omen is one of the rare stock market crash signals. The fact that it is rare makes it even more significant. A rare signal or event in the Shannon’s information theories (the backbone of the modern day digital communications) is considered to contain a higher amount of information. And this information from Hindenberg’s omen is obviously not a good news.

I have written about Hindenburg omen (H.O.) before  in 2006. Although in 2006 the H.O. signal did generate a 7% decline out of the stock market, it was by no means a “stock market crash." The current Hindenburg omen was triggered on June 6, 2008, and has been confirmed by subsequent repeated H.O. signals. The previous confirmed H.O. was in October of 2007, and stock markets definitely had a serious correction afterwards. The success rate for H.O. is only about 25%, or 1 crash in every 4 signals, and it will last for about 120 days during which it could crash. But if you could avoid those mini-crash period as a buy-and hold investor, you obviously will do so much better.

If you study the details of H.O. signal, it indicates an unhealthy stock market advance, with both new 52-week highs and new 52-week lows among different companies going on simultaneously in the stock market. The resolution for an unhealthy stock market is often a substantial decline (if it happens). It’s obvious that in the current state of stock market, the financial companies are breaking new lows, while energy stocks are breaking new highs. Isn’t that a bit scary with the crude oil advance stopped at $140? What’s going to propel the general stock market indexes higher, when crude oil is knocked out by the fear of a slowdown in global growth?

With stock market technicians that I follow, Frank Barbera, Bill Cara, Jack Chen, Bob Hoye, and John Hussman, all jumping into the bearish camp, I am fearful that a decline is just about anytime.

You’d better watch out, you’d better not cry …. Unfortunately, I am guessing that Bernanke Santa Claus will not be able to save this one.

Best luck.

Comments

[G-Cloud:]

The H Omen is confirming what common sense tells us. The state of the global economy is perhaps more fragile than at any other time. W

e have no long term experience with the exotic and intertwined financial transactions that we are dealing with today.

We have multiple speculative bubbles that are bursting.

We don't know what we don't know about the size of future losses that may be taken by the financial and related sectors. (Major uncertainty).

We have experienced rapid inflation in energy and food prices and it is having a profound negative effect on demand for less essential goods and services (leading to higher unemployment).

We have underfunded obligations in both government and private pension plans at precisely the time that large numbers of baby boomers are retiring (some benefits are going to be reduced - there will be no choice).

We have seen trillions of dollars of real estate wealth disappear into thin air in the US and the Euro Community in just two years with more to come (the disappearing nest egg).

Consider the possibility of worldwide disruptions in the delivery of energy and food and the total effect on the markets.

Watch out for test of Oct 2005 DOW levels (10,215) by this October or sooner.

2008 Jun 20 07:11 PM

[TA:]

The world is ending tomorrow - We're all going to die - run!!!

2008 Jun 21 12:34 AM

[genesok:]

The Gene Omen (flipping a quater) has a 50% success rate. Some may say it is twice as accurate as the Hindenburg Omen. I just checked it and there very well could be a major adjustment coming shortly! If correct, please put my Phd in the mail.

2008 Jun 21 12:50 AM

[Frugal Mill...:]

Based on Shannon's information theory, the entropy (or the information) contained in a signal is the -p log (p), where p is the probability. You guys are under-estimating the power of this signal. As far as I'm aware, this is much more significant than any other technical analysis tools using RSI/MACD, although they may compliment each other. I didn't write the entire history of this signal triggerred in the past, but it has been indeed awesome to say the least.

2008 Jun 21 04:38 AM

[Clarence Beeks:]

Buy Gold and protect yourselves regardless. It is truly amazing how few people actually buy gold and hold it but the fact is that gold is not controlled by governments and gold doesnt lie. So the next time you need to decide where to put your money, think of why they call the highest standard, "The Gold Standard"

2008 Jun 21 08:30 AM

[CLH:]

This seems to be the second time this BS (sometimes called HO signal) has been brought out this year. MY my hide under your bed.

2008 Jun 21 08:36 AM

[sliman:]

No long term track record. Remember the famous Superbowl indicator?

2008 Jun 21 09:06 AM

[ZenInvestor:]

I buy all the comments above to some extent, but this signal, combined with others tells me a Dow 10000 is something we can't discount as 'probable'. That said, the nature of recent 'crashes' has created buying opportunities and rationalized P/E rations, neither of which is a bad thing for long term investors.

2008 Jun 21 09:06 AM

[notsosmart:]

whats wrong with dow @10,000?

2008 Jun 21 09:43 AM

[WACG:]

NONSENSE!!! You cannot apply "Shannon Information Theory" to time series like financial data. The first and most simple reason is what is called autocorrelation. The probability of an event is NOT independent of previous events. This "application" of what is meant to be a rigorous scientific methodology is typical of the clueless. "Scientific" creationism comes to mind as another example. What is next? Applying wavelets (because they 'sound' scientific and kewl) to financial data? When your only tool is a hammer - all the world is a nail.

2008 Jun 21 10:22 AM

[retrace:]

Hindenburg omens
June of 2007 and again October of 07

........omens............
6-13*(1st)...dow 13,482.35
6-21*(2nd)...dow 13,545.84
6-22*(3rd)...dow 13,360.26
7-11*(4th)...dow 13,577.87
7-18*(5th)...dow 13,918.22
7-19............dow 14,000.41.....high +3.8421
7-20*(6th)...dow 13,851.08
7-23*(7th)...dow 13,943.42
7-24*(8th)...dow 13,716.95
8-08*(9th)...dow 13,657.86
8-09*(10th)...dow 13,270.68
8-15.............dow 12861.47
8-16.............dow 12,845.78.....low -8.9918%

October
.......10-9....dow 14,164.53...new high
#1...10-16..dow..13,91...
#2...10-17.........13,...
#3...10-18.........13,...
.......10-19.........1...
.......10-22.........1...
#4...10-25.........13,...
.......10-31.........1...
.......11-01.........1...
.......11-02.........1...
.......11-08.........1...
.......11-09.........1...
.......11-14.........1...
.......11-15.........1...

2008 Jun 21 11:07 AM

[bruin532:]

The problem with dow 10,000 is its 16.5% below dow 12,000 and not comming back any day soon. I heard a hissing noise comming from my tire the other day. I diden't need to see it go flat to know it was going flat. The Fed can keep pumping air into a fleaking economyso long before the hole gets to big or the pump brakes.

2008 Jun 21 11:09 AM

[bruin532:]

Remember its a market when theres buyers and sellers, seems everyones mostly sellers and a slow drift lower

2008 Jun 21 11:12 AM

[kurt walter:]

scare tactics

2008 Jun 21 11:59 AM

[proseadvocate:]

It's remarkable to see the naysayers who rely on nothing but their own blind mantra that somehow stocks always go up. At least the doomsayers have some rationale for their hypothesis, though it may not be entirely scientific. Beware of those saying always and never for they will surely lose. In the long run, we are all dead.

2008 Jun 21 02:32 PM

[UncleFrank:]

Don't worry! Obama has all the answers! Ha, ha, ha, ha, ha!

2008 Jun 21 04:12 PM

[whiteowl:]

Never heard such a bunch of trash in my life. Geeeeeshhh...

2008 Jun 21 11:10 PM

[Eagle-Chief:]

Hindenburg Omen - sounds bad ! What should we expect - a massive fireball explosion? Maybe it could also be called the Titanic Warning - then we'd all be at the bottom of the sea.

And as for Bernanke - is he Santa Claus that forgot to bring presents, or is he Scrooge who steals all the presents from the little boys and girls?

2008 Jun 22 02:11 AM

[bluecat:]

This signal has been triggered 3 times already this month. Ignore it at your own peril. I am short this market!

2008 Jun 22 03:51 AM

[elwind45:]

This market needs volume, and quick. At this point i think we are putting in " right shoulder "! It remains to be seen how long tthis drop is going to be. The length of this attempt depends on volume. The amount of returns you can make in bond markets and overseas markets, our market is small potato. The amount of false breakouts will force more buyers to give up. A market leveling reform package will have to be offered to the small investor before true confidence can return to stock market.

2008 Jun 22 04:55 AM

[Tech-trac:]

Mkts that break their winter lo's in JAN decline on avg 30%..
We did just that this year...

The DOW Util's formed the sme topping pattern as they did in #2001... As then, JUNE was an UGLY month...

While CASH may not be KING (yet) it does appear to be the Heir Apparent!

2008 Jun 22 06:00 AM

[Bear Stocks...:]

If you are so concerned about the market crashing, just buy some inverse ETFs like SKF, QID, FXP, SJF and DXD. Or short-sell stocks like CLMT, TSO, FMCN, KBH and BCSI.

2008 Jun 22 11:34 AM

[Bob the Bear:]

Apparently the market is going to test the January, March bottoms. You know what they say about a drowning man, third time down, he's gone. Not scientific, but that's what they say.

2008 Jun 22 11:48 AM

[Ex15:26:]

To the poster that said, "Governments can't control gold", I would beg to differ. I would suggest that governments are the biggest owners of gold and that would lend to more control and ability to manipulate prices right?
What would happen if the China dumped all its gold on the market in one day? By by $900 an oz, that's for sure.
Take the H.O or leave it. I'd like to have a list of all confirmed previous H.Omens please.

2008 Jun 22 04:27 PM

[retrace:]

Ex15:26
these are from 1986 to 2005
scroll down about 1/2 way

www.safehaven.com/show...

here is another from Robert McHugh

https://technicalindicatorinde...

2008 Jun 22 07:27 PM