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The web is on fire with stories about the Hindenburg Omen that was triggered last week. The Hindenburg Omen is going to make things very bad, very soon, if technical analysts are correct. Never heard of it? You're not alone. It's a market anomaly that happens very rarely. However, when it does happen, it can mean we are heading over a cliff, and fast. The last time it happened? June 2008.

The Hindenburg Omen is created by a combination of factors, the primary being that a substantial number of NYSE stocks hit their 52-week highs and lows at the same time, and that the concentration of those stocks makes up at least 2.2% of the overall number of stocks listed on the NYSE. There are a number of other conditions that add to or detract from the severity of the predicted crash, but the only other mandatory condition is that the number of 52-week highs is less than double the number of 52-week lows.

All these conditions were met last Thursday.

Now, you may doubt that the Hindenburg Omen is a real harbinger of doom. It is, after all, a relatively new indicator postulated in the mid-90's. What there can be no doubt about, however, is how seriously it is being taken by traders. And it is lighting up the Internet.

The Street is on it (link above), CNBC is on it, Forbes is on it, and you can bet your ass Zero Hedge is on it. Hell, even the L.A. Times is on it. Those DXD calls of mine are looking better all the time.

In any case, it looks like we won't have to wait long to see if it's for real. The Hindenburg Omen triggered last week is indicating a back-to-school market crash in September. So what's the consensus, guys? Is it the real deal, or a bunch of chartist hooey?

Comments (41)

  • Mo's picture

    Please not again, how many years will a graduate have to continue struggling after graduating.

    Maybe I do not have quotes under my name on google, but I KEEP IT REAL

  • In reply to olafenizer
    Camondo's picture

    olafenizer wrote:
    I think that even if it isn't real, the publicity it's receiving might give the momentum to turn it into a self-fulfilling prophecy.

    I completely agree with you. By the way, I don't think we really are in a rising market and many traders are quite annoyed because they aren't able to reveal a bullish/bearish trend.

  • In reply to MonkeyMath
    jocksnjills's picture

    MonkeyMath wrote:
    Yes, the Hindenburg Omen is real, but a better technical indicator of impending market collapse is when I am searching for a position in finance.

    How do you know its real? This is total bullshit. I'm going to have to agree with Taleb on this one. Humans will do anything to show that they can prove why something happens. So some people in the 90's come up with a set of parameters that meet the conditions of an economic collapse...so what??? I'm sure that could be done countless times, and it has. The sad thing is, is that people on here are right. Even if this has no correlation what so ever, which I highly doubt it does, this could likely turn into a self-fulfilling prophecy. Efficient markets my ass. What a joke.

  • IlliniProgrammer's picture

    One thing to keep in mind was the cause behind the Hindenburg omen last time- a bunch of hedge funds blowing up. Same with the crash of '87 (Caveat- I was getting my news from Sesame Street- which mostly covered Broccoli and crayons- when that happened and just noticed that a lot of my Dad's clients were calling him at home all night long.)

    One way of looking at it is the Hindenburg phenomenon is a sympton of a set of faults in the models. The question is how bad is it and how prepared are we for it? Back in 1970, for instance, the market was still being run by folks who survived the Great Depression- and it was unleveraged enough that it could handle the Penn Central default without flinching. IMHO, 2008 wasn't a bigger shock to the markets than Penn Central was, but there was more leverage in the system.

    There's less leverage today than there was in 2008. And the fundamental economy is on a little more solid footing. Consumers are less leveraged, oil is cheaper, and there's now an obvious- if long- path to a more sustainable economy for the US.

    As a hint of where I think things are going, the MLP sector is setting record highs. MLPs require massive, massive tax work for anyone who owns them. Pipelines and oil trusts are also pretty simple to model. Hence, they typically have a higher institutional ownership and tend to be more driven by models.

    MLPs starting taking a big hit back in June of 2008, but this time around, they're doing pretty well, and in fact, following the old rule of thumb of 10-year-treasury yield +4% for a fair price. This time around, it's *possible* that the model-driven funds are recovering and the stuff that fell out of favor as the models broke- like MLPs- are now coming back.

    I'm more heavily into cash than I've ever been since 2008 (when my firm capitulated and I was worried about having to live on unemployment)- putting my assets at a mix of 45% CDs, shorter-term TIPS, stable value and cash accounts, and 55% stock. That said, I'm not going to beat a panicked run for the exits because some technician says "There might be a crash this year, but I really don't know. It only happens 25% of the time." Likewise, I'm not going to cancel my Saturday on the Honda CBR down Hwy 9-W because the weatherman comes on and says, "There's a chance of rain, but I'm not really sure." Instead, I'm going to pack my rain gear under the seat and stay within 30 minutes of home in case it starts lightning.

    If you've got ten months of emergency savings and the money you've saved up for purchases you intend to make in the next five years in cash, you've got your rain gear and you're within 30 minutes of home.

  • lever up's picture

    I feel like trends/omens like this get pumped up big time by sensationalist reporting at media outlets like CNBC. It's no fun for them to report "another average day in the markets".

  • In reply to cartman
    IlliniProgrammer's picture

    noway wrote:
    this is so fucking retarded

    why do we keep inventing bullshit measures that the media can forcefeed down the public's throats in order to form a self-fulfilling prophecy?


    Because bad news sells better than good news.

    I am inventing the IlliniProgrammer coefficient. It's the percentage of non-negative news that makes the AP vs. the percentage of bearish interviewees that show up on tech ticker.

  • jocksnjills's picture

    I went into Taleb's book thinking I would hate it but its really fascinating. Humans WILL come up with measurements to show that they can predict/prove why things happen AND the media is one of those most destructive forces ever. Most of the U.S. population doesn't know anything about finance/economics in the first place. The last thing they need is some bullshit journalist, who probably doesn't know anything about finance/economics as well, typing up a story to sell papers/magazines. Journalists don't give a shit about writing meaningful pieces, they care about writing stories that attract attention.

  • In reply to jocksnjills
    Victor252's picture

    dumbyoungbum wrote:
    I went into Taleb's book thinking I would hate it but its really fascinating. Humans WILL come up with measurements to show that they can predict/prove why things happen AND the media is one of those most destructive forces ever. Most of the U.S. population doesn't know anything about finance/economics in the first place. The last thing they need is some bullshit journalist, who probably doesn't know anything about finance/economics as well, typing up a story to sell papers/magazines. Journalists don't give a shit about writing meaningful pieces, they care about writing stories that attract attention.

    I almost think these Squawk Box or Smart Money style shows should should be banned from the airwaves. They border on pump and dump schemes and just create misinformation in the marketplace.

    I'd go as far to say that the majority of what they report isn't even factually accurate. My dad is an addict to this stuff and every time i see him he wants to know if some bullshit story is true. Journalists have less integrity than the crooks they report on.

  • In reply to Bi-Winning
    Independent Gestion's picture

    arbitRAGE. wrote:
    Fox news finally got it: http://www.youtube.com/watch?v=bp5c7NuDyiA[/quote]

    Probably the most rational Glenn Beck rant I've ever seen. It may be fearmongering but it raises interesting discourse. I don't know about his quasi-religous solution but I definitely do agree that Republicans/Tea Party advocates in congress isn't going to change shit. Policy needs to be adapted on a much greater scale.

    ‎"Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to become the means by which men deal with one another, then men become the tools of other men. Blood, whips and guns or dollars."

  • buycredz's picture

    That thing is total crap, if technical analysis was so powerful then the entire forbes richest person list would be nothing but chartists. Tudor used technical analysis to reinforce his market view, bascially used the chart as a crutch to prove his theory right. The issue is right now, no one has a clue about the economy some people in the slow growth camp, some people in deflation camp, etc. Long term fundamentals will rule which is why people like Buffett and Klarman exist. The problem is the economy is starting to sputter out from the monetary stimulus and the obama presidency is more anti business than FDR; so unless the elections change the balance of power or obama finally gets it that he needs the private sector to drive growth, we are not going to be growing at sub 1% until we get a pro business legislature.

    By the way deflation is a very scary prospect, not many businesses can survive in their current form in a deflationary enviroment for very long in their current form (layoffs, consolidation, ch 11s)

  • In reply to jocksnjills
    DoctorEvil's picture

    dumbyoungbum wrote:
    I went into Taleb's book thinking I would hate it but its really fascinating. Humans WILL come up with measurements to show that they can predict/prove why things happen AND the media is one of those most destructive forces ever. Most of the U.S. population doesn't know anything about finance/economics in the first place. The last thing they need is some bullshit journalist, who probably doesn't know anything about finance/economics as well, typing up a story to sell papers/magazines. Journalists don't give a shit about writing meaningful pieces, they care about writing stories that attract attention.

    Couldn't have said it better myself and I'm a part of that shitstorm of a succubus they call the media ... !

  • Bi-Winning's picture

    I'm in the deflation camp (go figure), unless the government spews out excess money supply.

    I win here, I win there...

  • In reply to buycredz
    MonkeyInHumanSuit's picture

    buycredz wrote:
    That thing is total crap, if technical analysis was so powerful then the entire forbes richest person list would be nothing but chartists. Tudor used technical analysis to reinforce his market view, bascially used the chart as a crutch to prove his theory right. The issue is right now, no one has a clue about the economy some people in the slow growth camp, some people in deflation camp, etc. Long term fundamentals will rule which is why people like Buffett and Klarman exist. The problem is the economy is starting to sputter out from the monetary stimulus and the obama presidency is more anti business than FDR; so unless the elections change the balance of power or obama finally gets it that he needs the private sector to drive growth, we are not going to be growing at sub 1% until we get a pro business legislature.

    By the way deflation is a very scary prospect, not many businesses can survive in their current form in a deflationary enviroment for very long in their current form (layoffs, consolidation, ch 11s)

    First sentence is complete garbage. That's like saying if I follow how successful traders traded in the past, I'll reproduce the same results. Trading isn't physics, it is a social science where you can run an experiment with the same parameters and have two completely different results. No single technical or fundamental indicator will be right in absolute terms beause everything is relative in markets. However, since enough people subscribe to TA, in some securities, it is enough to move prices. Buffett thinks charting is useless, Tudor said he made well over half of his money from TA. What does this tell us? If it's profitable, who cares?

  • buycredz's picture

    All I am saying is that its not that profitable; you might want to revisit your source on Tudor. TA is a complete joke, its like statistics you can make it saying anything you want.

    From the man himself- see used TA to support his fundamental analysis, not the other way around.

    Paul Tudor Jones: Certainly. The one on a percentage basis that's been the most profitable for me was the crash of 1987. There was a tremendous embedded derivatives accident waiting to happen in the crash of '87 because there was something in the market that time called portfolio insurance that essentially meant that when stocks started to go down it was going to create more selling because the people who had written these derivatives would be forced to sell on every down-tick. So it was a situation where you knew that if you ever got to a point where the market started to go down that the selling would actually cascade instead of dry up because of the measure of these derivative instruments that had been written. And in the crash of '87 you had an overvalued market and you also finally had a situation where every down-tick would create more selling and I think I understood the dynamics of that. The crash was something that was imminently forecastable to somebody that understood the measure of derivatives and how large they had grown in such a relatively short period of time and the impact that it would have on a relatively unknowing and na'e market. And the same exact thing happened in 1990 in Japan

  • cros09's picture

    I remember reading a post a few weeks ago that talked about how the general population sees CNBC as the financial bible of information, and they'll believe anything they hear on that to be the "be-all, end-all." It would be a travesty to see media coverage of this spark so much fear that these people bail out of the markets.

  • danjay72's picture

    My father uses fundamentals.
    I use technicals.

    I'm outperforming.

    Having said that - this sounds like someone just found similar characteristics between all the crashes and determined that they MIGHT be legit.

    I hope you all realize that if volume comes back into the market we'll go up 1000 points on the Dow in a heartbeat.