When several technical factors that represent certain conditions underpinning the New York Stock Exchange (NYSE) exist concurrently, called the Hindenburg Omen (HO), then according to some analysts a stock market crash is sure to follow.
Those conditions were reportedly met on Tuesday 10th August 2010.
The HO has been there before every stock market crash and scare for the past 25 years.
The HO was developed by a blind mathematician named Jim Miekka (Sudbury Bull and Bear Report) and dubbed the Hindenburg Omen by Kennedy Gammage (Richland Report). And yes it was named after the Hindenburg airship disaster at Lakehurst Naval Air Station, New Jersey on the evening of May 6th 1937.
The main aim of the indicator is to see whether there is a higher probability than normal that the market will drop.
The criteria for the HO to exist are quite technical and tight. There are five conditions that can actually be applied to any stock exchange.
- 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 or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.
- That the NYSE 10 Week moving average is rising.
- That the McClellan Oscillator (a market breadth indicator showing money flowing in/out) is negative on that same day.
- And most importantly (in fact mandatory) 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).
Warned you it was technical!
These conditions happening once are called an unconfirmed HO. When two or more happen in a 36 day period it is called a confirmed HO.
The subsequent crash or event can happen any time within 4 months after the HO.