A Hindenburg Omen
was launched last week…those Omens occur during periods of high
volatility in stock prices (note that is different from the FEAR index
which is measured in the put-call ratios by the VIX index)…stay tuned!
It seems that something is percolating underneath the covers that the
general retail investor will find out only when it’s too late? The original trigger occurred on July 25th, and was quickly followed with not one, but two confirmation days! A rarity!
Remember the Hindenburg? A spectacular destruction of the famous dirigible was caught on film in 1937! The term “Hindenburg” has become synonymous with man-made disasters.
Typically, the Omen warns of an acute phase within 40 days of the trigger date…and otherwise warns us to stay on the alert for strong sell-offs for up to 4 months. Though not every Hindenburg has successfully warned of a Market Crash or a significant sell-off, the facts are that since the mid-1980s, no crash has occurred without one! The 1987, 2000 and 2008 Market Crashes were all preceded by the Hindenburg Omen. On the other hand, many Omens have occurred without a Crash. Yet, even during these Omen periods, there were many sell-offs as deep as 15% from the top. Granted, the rules of the Omen are rather arcane, but I think the basic premise of a highly volatile market of new highs and new lows does carry some meaning about a divergence among investors.
For more information on this quirky phenomenon, visit an unbiased site like Wikipedia….