The Hindenburg Omen is upon us. What is this dreaded scourge you ask? Well, it’s supposedly the equivalent of financial Armageddon reigning down upon us mere mortals. An otherwise obscure blind mathematician by the name of Jim Miekka has postulated that when several sets of financial factors and ratios all align negatively, that is the key predictor for a significant market correction. You’ll hear a lot about this prediction this coming week if you haven’t already, since these key indicators all recently fell into place last week.
What is the Hindenburg Omen?
The Omen is expected to occur during the confluence of the following 5 events:
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.
3. The NYSE 10 Week moving average is rising.
4. The McClellan Oscillator is negative on that same day.
5. 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).
Does the Hindenburg Omen Matter?
In my mind, no. While these criteria are often met prior to severe market crashes, they are ALSO met when nothing happens. It is estimated that this omen has only come to fruition 25% of the time! Granted, I’ll still make a trip to the casino now and then knowing the house has a 2% advantaged at Blackjack. But a 25% advantage? That’s not for me. If anything, perhaps some of the press and hype the omen will get this week will give some investors pause and stocks will decline as a result, I’m not altering my long-term investment strategy as a result, for if I did, I would have missed prior positive runups and we all know retail investors lose when they try to time the market.
I’ll give the Hinds some credit. At least there’s some data tied to it. Most Omens are bogus, like the people thinking the reckoning was upon us for Y2K, 2012, etc. even though most experts believe we don’t even have the date of Christ’s real birth or death accurately anyway since his whole story was written hundreds of years after his existence, so basing end of days omens on the common Gregorian calendar is rather silly. Americans just love a good conspiracy and the press loves hype. So, rather than hyping, I’m skeptical.
Where Did the Name Come From?
The foreboding name was apparently conceived by Miekka’s colleague who, while searching for a really scary sounding name, realized that the Titanic was already taken, so they went with the next best thing – The Hindenburg Omen. See, the thing is, the Hindenburg didn’t rise 70% within 9 months after it crashed, but the S&P500 did last year :>