August 15, 2010

Hindenburg Omen Reportedly Returns. Will Doom Follow?

Convergence of five technical indicators is said to predict a market crash

The Hindenburg exploding in Lakehurst, N.J., in 1937. The Hindenburg exploding in Lakehurst, N.J., in 1937.

Word on the Street says that the Hindenburg Omen has reappeared. The phenomenon, a grouping of five linked technical indicators that have historically made their joint appearance preceding previous market crashes, was talked about on Friday the 13th in blogs and articles all over the financial sphere.

Named after the explosion of the hydrogen-fueled dirigible at Lakehurst, New Jersey, in 1937, the five indicators were variously reported to have recurred Tuesday or Thursday, depending on sources. Even Britain's Daily Telegraph warns of potential catastrophe for the FTSE, despite the fact that the Omen is supposed to be an exclusively NYSE phenomenon.

Mathematician Jim Miekka is credited with devising the system, which, according to one source, is used to predict sharp corrections and helps traders to profit or evade losses. When 2.2% of traded issues reach new highs at the same time that 2.2% of other issues are hitting new lows, and the smaller of these numbers is greater than or equal to 69, then two of the indicators are satisfied. Others include a rise in the 10-week moving average of the NYSE Composite Index; a negative indication by the McClellan Oscillator; and new 52-week highs that are not more than double the new 52-week lows.

The last Hindenburg Omen was reported during the lows of 2009. Whether one credits the system or not, it reportedly has been present just before all selloffs and market corrections in the last 25 years. Miekka, who devised the system in 1995, credits his colleague Kennedy Gammage with its doomsaying name; he came up with it when they realized that "Titanic" had already been used for another predictor. Somehow it seems a particularly appropriate signal to appear on a Friday the 13th.

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