Hindenburg omen sounded again for stock markets
Posted by Frugal on June 20th, 2008
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 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 on my site at 1stMillionAt33.com in 2006. Although in 2006 H.O. signal did generate a 7% declines out of the stock market, it was by no means a “stock market crash”. The current Hindenburg omen was triggered on June 6th 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 & 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.
Frugal at 1stMillionAt33.com
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June 20th, 2008 at 1:18 pm
Hmm,
Isn’t the best time to buy when there is blood in the streets and everyone is panicking? GE is now at $27 and change, theres gotta be some bargains to be snapped up. I guess time will tell as always… easy to call the bottom in hindsight.
-Mike
June 20th, 2008 at 11:03 pm
Hi Frugal,
I posted and saw the comment but the comment wasn’t saved. What gives?
-Mike
June 22nd, 2008 at 11:29 pm
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April 10th, 2009 at 12:18 pm
Thank you. Very useful information