I have no experience with the Hindenburg Omen, but from this chart, it hardly looks reliable.

Hidenburg

Its had some terrific calls — 1987 in particular — but lots of false positives also.

Does anyone have anymore specific experience with this indicator than I?  Please explain in the comments — good, bad or indifferent.

UPDATE II May 1 2006 3:14pm 

Here’s an analysis of the Hindenburg Omen by Kennedy Gammage; He gives it more credit than I do . . .

Download Hindenburg.pdf

Here

>

UPDATE April 25 2006 4:14pm

John Hussman discusses the prior Hindenburg Omens:

Hindenburgs:  "I’ve noted often that a great deal of the information
conveyed by markets is contained in “divergences” between securities. While
investors shouldn’t read too much into any indicator, there’s an interesting
signal that has enough validity as a measure of divergence that it’s worth
mentioning here. Think of it as slightly more than entertainment value but far
less than a reliable guide to investment.

The signal is based on new highs and new lows, and is
cheerfully called a Hindenburg (the actual name given to it by Kennedy Gammage
is the “Hindenburg Omen” but that strikes me as far too, well, ominous, because
it’s certainly not a sufficient condition for a market decline). It’s a
relatively unusual event that has often preceded fairly substantial market
declines with a fairly short lead time (usually within 30-60 days, including
declines in 1987, 1990, 1998, 2000 and 2001), but has sometimes proved to be
meaningless or insignificant as well (such as a cluster of signals in September
2005, among others).

The basic elements are:

1) the market is in a rising trend,
defined as the NYSE Composite being above its 10-week average;

2) both daily new
highs and new lows exceed 2.2% of issues traded, and

3) the McClellan Oscillator
is negative – meaning that market breadth as measured by advances and declines
is relatively weak (there’s some dispute, which I will not join, as to whether
the Oscillator has to be negative that day or turn negative
later). Peter Eliades added a couple of other conditions to eliminate signals
occurring in clearly strong markets:

4) new highs can’t exceed new lows by more
than 2-to-1, and

5) 2 or more signals occur within about a month (he uses 36
days) of each other.

As it happens, we observed a Hindenburg on April 7th (just 2
days after the market high) and another one on April 10, so those elements seem
to be in place here.

>

Source:
The April 2006 Hindenburg Omen Has Now Been Confirmed
Robert McHugh
Monday, April 24, 2006 7:20 GMT
http://futures.fxstreet.com/Futures/content/100480/content.asp?menu=review

Main Line Investors
http://www.technicalindicatorindex.com

Category: Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Hindenburg Omen ?”

  1. anonimouse says:

    That agrees with my take on the Hindenurg Omen.

    I took a look at McHugh’s stuff via a free 30-day subscription, and much of it seems like numerology. Each of his reports ends with “Caution is warranted.” Doh!

    I’m also put off by the Biblical quote that ends each of his reports. When it comes to markets and those who cover them I want skepticism, not faith.

    But he may have a good handle on the manipulation of the market by the Plunge Protection Team through massive buying of calls which triggers short-covering rallies.

  2. B says:

    The Hindenberg Omen has lost some relevancy on the surface because of the type of instruments traded on the NYSE. Alot of bonds that are disguised as stocks. The market is much stronger than indicated by the recent HO reading.

    Needless to say, it isn’t to be discounted totally. It works better if you discount the bond issues in the HO calculation. I’m quite sure that is what Lowry’s has done in their numerous calculators. Or, use the Naz where those types of issues don’t typically trade.

  3. John Navin says:

    This particular Hindenberg Omen comes at the same time of a DiNapoli “Double Repo” sell — so, I’d say that’s confirmation of some kind.

    DiNapoli wrote the book on using Fibonacci levels in combination with moving averages.

  4. Mike says:

    http://www.hussmanfunds.com/wmc/wmc060417.htm

    Hussman says it is valid. Hussman is dreamy and always right.

    I predict the market is toast within 2 months. Peanut butter & jelly you sad sorry sacks.

    My puts will rise exponentially in power and I will buy out CNBC and fire Larry Kudlow. He will be replaced
    with Robert Prechter.

    I will start a blog called “The Biggest Picture” and blog about all things worthy of my attention.

    I will make appearance on my new cable channel – CNBC wearing a sweater that will be the topic of conversation on “The Biggest Picture” blog.

    -Mike

  5. B says:

    Nice start to the day. Inco, Phelps, Oil, CRB up. People are deluded if they think the economy is totally wonderful. It ain’t too bad but this isn’t what leads a healthy, productivity driven economy. Tech has been basically dead since the end of 2003. Bonds blowing doughnuts. If we punch through 50.50 on yields, that HO will mean alot more. Especially since we are well oversold on bonds and should be getting some type of intermediate term bounce.

  6. B says:

    You were making sense Mike until you brought up Prechter. I always get that confused with sphincter.

  7. vfoster says:

    why would his aides allow him to be speaking on tv about something he obviously knows nothing about.. oil
    can anyone explain why putting more oil on the market will bring down gas prices if refining capacity is already maxed out?

    TY1 puking on itself and thru support.. stocks don’t like that too much. what will happend when Bernanke speaks on Thur? he better be careful

  8. Brian says:

    I watched my energy stocks tank after W said whatever he said. We’re not going to be putting a tiny bit of oil in the SPR that there is no refining capacity for anyway? Hydrogen and stuff. Is Wall Street that stupid? Signs point to yes!

    I guess though, if we’re not filling up the SPR, the whole Iran thing won’t be happening? Because a smart strategest would top it off before starting another war in the mid east . . . uh oh . . .

  9. Billy says:

    Brian, that was my thought exactly: no Iran war at this time.

    Regarding the dreaded and feared Hindenburg Omen, see:

    http://www.safehaven.com/article-5019.htm

    It seems like a pretty accurate signal unless the Fed is pumping liquidity.

  10. Alaskan Pete says:

    I read recently that the SPR has already been re-filled from the last drawdown after Katrina/Rita. Sounds like a canard to me…where you gonna put it if the res is already full.

  11. GRL says:

    Brian, that was my thought exactly: no Iran war at this time.

    . . . Especially since what is going on with Iran really has more to do with what is going on in Iraq than anything else, and right now, things are going well in Iraq (relatively speaking, of course).

    As for the Hindenburg, I look at it as just another incomprehensible technical indicator whose meaning will become clear in restrospect only.

    Besides, who cares, since NDE had a blowout quarter and the stock is on fire. Who would have imagined . . . single family housing’s bubble is bursting, but NDE still blew the doors off estimates, is raising guidance, and raising the dividend.

  12. Greg Morris says:

    I covered the Hindenburg Omen in my book (“The Complete Guide to Market Breadth Indicators,” a copy of which I sent to Barry last fall. Barry, you might look at pages 218-221 for details. This top indicator was created by a bright mathematician named James Miekka. It was actually named by the last Kennedy Gammage of the Richland Report. Most TOP indicators will have failures just because of the long period distribution nature of tops. Bottoms are a different animal entirely.

  13. Billy says:

    Alaskan Pete,

    I just did some poking around on the SPR capacity… as you say it is close to being filled but could still hold almost another 6%.

    Current amount in the SPR is 687.5 million barrels from:

    http://www2.spr.doe.gov/DIR/SilverStream/Pages/pgDailyInventoryReportViewDOE_new.html

    Total current capacity is 727 million barrels.

  14. rob says:

    If you consider GOOG the current Hindenburg then it looks like the tarmac at Lakehurst is coming into view today.

  15. Tim says:

    The Hindenberg Omen II is much better than the original – that’s the one where Damian the Antichrist, now age 13, finally learns of his destiny under the guidance of an unholy disciple of Satan, while dark mystical forces begin to eliminate all those who suspect the child’s true identity.

  16. paul says:

    World events – Iran, iraq, Venezuala, nigeria, and Chad – suggest threats to strategic petroleum that would suggest maximum strategic petroleum reserves woul dbe a good idea. Even better since the warm winter made for a warm Gulf of Mexico, where hurricaine season starts soon.

    The comment about refining being the bottleneck was perfect. Not filling the SPR lowers crude prices, not gas, and basically subsidizes the Chinese in filling their SPR.

    This is just the move of an unpopular Pres/’Decider’ panicking about upcoming elections. Let’s call the oil execs before Congress again so they can explain to the Republicans how markets work.

  17. Mark says:

    “If you consider GOOG the current Hindenburg then it looks like the tarmac at Lakehurst is coming into view today.”

    LOVED THAT ONE!

  18. B says:

    By God, I’ve got the answer thanks to Tim. I know the exact day the market will drop. It is oh so clear. 6-6-6. June 6th, 2006. You are a genius!

    We now officially have the Hindenberg Omen date. And, that is when George Bush will remove his mask and reveal his true self. He is Damien! On that very day we will attack Iran and fulfill the prophecy of Revelations with an all out conflict in the middle east. I knew Iraq’s invasion had meaning. I just couldn’t put my finger on it.

    Btw, in case the Nazi’s, I mean NSA, is monitoring this board as they now monitor everything else that is American, I am only joking.

  19. Ricardo says:

    … all this bearish talk and the market just hangs in there! … who are these idiots anyway that are buying? …oops it must be Main Street, always last to a party. I don’t know if anyone else noticed, but the world is now perilously close to a 3rd world war. Bush will not rest ’till he really pisses of those Muslims. And the markets are still at six year highs? Somethings gotta give.

  20. Mike says:

    It’s hard work being a bear. Just about every week over
    the last few months the market has gone up.

    But we bears hang in there and hope against hope. Hmm..perhaps we fearmonger against hope.

    Leaps are getting cheaper over the last few weeks. Load up & you too can buy a cable news outlet and make staff changes that will amuse you.

    “Prechter & Company” coming soon to CNBC.

  21. Ali Khamenei says:

    You stop filling SPR.

    Now I can rest easy.

    Ayatollah Ali

  22. HBT says:

    referencing the post from “Greg at Apr 25, 2006 12:34:58 PM”…
    his description of the HO is excellent- concise & thorough; I have read his book- Complete Guide to Market Breadth Indicators- several times; great book & reference – very well-written & organized; displays a smooth economy of words for his explanations & charts, while fully covering each topic

  23. B says:

    Yesterday, over 70% of the new lows on the NYSE were bond-type listings that aren’t representative in any way of stocks. That leaves about 40 new lows of mostly low quality companies. I saw one that I believe is an S&P500 company. That is not an ugly number. Especially combined with the new lows on the Nasdaq.

    One should not become enamored with an “indicator”. Especially one that has eroded significantly over time due to the NYSE’s zeal to list nontraditional instruments on its exchange. Paul Desmond actually pointed this out in his interview with Barry as I recall. Again, that said, one of the biggest risks to equities is long rates and they are now 60% higher than the start of this bull cycle. The market is not a healthy one.