Cluster of Hindenburg Omens: Is A Stock Market Crash Imminent?

market correction bearAre we heading for a major stock market (NYSEARCA:SPY) decline?  Warnings about a crash of the financial markets are quite common these days, and usually they don’t materialize.  But this time may be different.  A number of top analysts are pointing out the fact that the biggest cluster of “Hindenburg Omens” has appeared since the last stock market crash.  And those that have studied this insist that the more “Hindenburg Omens” there are in a cluster, the stronger the signal is.  Meanwhile, another very disturbing sign is the fact that the yield on 10 year U.S. Treasuries is starting to soar again.  On Tuesday it shot up from 2.62% to 2.727%.  As I have written about previously, the yield on 10 year U.S. Treasuries is the most important number in the U.S. economy right now.  If that number continues to rise, it is going to be very, very bad news for the financial system.

But before I discuss rising interest rates any further, I want to talk about this unusual cluster of Hindenburg Omens that we have just witnessed.  In a previous article, I shared a list of the criteria that are commonly used to determine whether a Hindenburg Omen has appeared or not…

1. 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.

2. 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.

3. That the NYSE 10 Week moving average is rising.

4. That the McClellan Oscillator ( a market breadth indicator used to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market)is negative on that same day.

5. 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).

When the Hindenburg Omen makes an appearance, it is supposedly a signal that the U.S. stock market (NYSEARCA:DIA) will likely experience a significant decline within the next 40 days.

But of course this has not always happened when a Hindenburg Omen has appeared.  However, what we are seeing right now is a highly concentrated cluster of Hindenburg Omens.  According toSentimenTrader’s Jason Goepfert, the last time such a cluster appeared was before the last stock market crash…

Sometimes a topic in the market takes hold and it’s hard to shake it off. One of those is the technical “market crash” signal called the Hindenburg Omen.

It has its boosters and its detractors, and we’re not going to get caught up in debating its merits. We’ve discussed it for 12 years, always with the same arguments.

On June 10th, we outlined the market’s historical performance after suffering at least 5 signals from the Hindenburg Omen within a two-week period. Stocks were consistently weak afterward, and proved to be so again, at least for a while.

With the latest market rally, the Omens are flaring up again.There have been 5 Omens triggered out of the past 8 trading sessions (your data may vary—we’re using the same sources we’ve always used for historical data). That’s actually the closest-grouped cluster since early November 2007.

It’s extremely rare to see as many Omens occurring together as we’ve seen over the past 50 days. The last time was prior to the bear market in 2007.

The time before that was prior to the bear market in 2000.

Will the pattern hold up this time?

Pages: 1 2 3

Leave a Reply

Your email address will not be published. Required fields are marked *