The Hindenburg Omen - A Dire Economical Warning

This is a rare, albeit potent, indicator of a coming stock market crash.


High Likelihood of a Stock Market Crash

A lot of other warning signs indicate that the Bank of Scotland isn't that crazy in predicting the unpredictable. First, the past month generated an Hindenburg Omen. The Omen is a measure of internal divergences in the market and is signaled on June 6th. While the Omen doesn't necessarily mean the market will crash, no crash has ever occurred without a signal in the prior 40 days. For instance, an Hindenburg Omen signal occurred on September 19th, 1987 about one month before the market collapsed.

The Hindenburg Omen was recently mentioned in a recent thread and I feel it is so important that it demands it's own discussion.

Here is the criteria:

The traditional definition of a Hindenburg Omen has five criteria:
* That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.
* That the smaller of these numbers is greater than 75. (this is not a rule but a function of the 2.2% of the total issues)
* That the NYSE 10 Week moving average is rising.
* That the McClellan Oscillator is negative on that same day.
* That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs).
[edit]

The last Hindenburg omen occurred on June 6th, 2008. This would put the crash in line with RBS's prediction of a crash in late July.

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.
[2]

It is, therefore, the divergence in the market that indicates major instability.



This indicator is accurate roughly 25% of the time in terms of signaling a full on crash, but it generally indicates a negative trend in the markets. Investors who are prepared for these dips should fare better.

I will try and find a historical list of H.O.'s so we can go through them.





[edit on 23-6-2008 by TruthWithin]

Additionally, I just found that there have been THREE Omens since June 6th 2008. Here is the article.

McHugh is big fan of Hindenburg Omens and is constantly watching for them. As the name implies, they aren't good, and therefore fit in perfectly with his view of the world. Unfortunately, there have been three since June-6. Apparently, one Omen is a warning, but two or several close together is a confirmed Omen with very negative implications

I tried to read about this the other day but my eyes glossed over due to the technical jargon. You have explained it much better, thanks! It does seem worrisome. If nothing else, it's more evidence that we are headed in the wrong direction.

reply to post by kosmicjack


Thanks! It is a little complex, but it has become a trusted indicator.

According to Robert McHugh, CEO of Main Line Investors, "The omen has appeared before all of the stock market crashes, or panic events, of the past 21 years", speaking about 1985 to 2006. Having a signal that can generate sharp market declines is appealing to all active traders, but this signal is not as common as most traders would hope. According to McHugh, the omen only created a signal on 160 separate days, or 3.2% of the approximate 5,000 days that he studied.

[1]

Rare, but potent.

My only suggestion is that people who are heavily invested in the market pull out at least some of their money and "invest" it in physical goods of some kind. Silver and gold, in particular, are greatly preferable to keeping a lot of invisible, standard-less federal reserve notes in a bank or in the stock market.

People who protect themselves now will have a better chance of surviving comfortably if the stock market really does crash and incite mass panic.

Where are all of the ATS economic scholars? I am dying to get their perspective on this!

Originally posted by TruthWithin
Where are all of the ATS economic scholars? I am dying to get their perspective on this!

They all busy pulling their money as fast as their little hands can grab it outta the stock market ' cause of your warning.



Me, im a spoor as a church mouse so...investments will be all ok if i leave my £2:50 in them...

On a deadly serious note though - This looks like it could be crunch time. I am old enough to remember the early 1990s crash, and before that crash the times newspaper had this 'hindenburg curve' in it.

LOL! I guess so. This thing does sound pretty serious. I am investment poor too.

I wonder if gold will even hold up - wouldn't that be hit too?

Originally posted by TruthWithin
LOL! I guess so. This thing does sound pretty serious. I am investment poor too.

I wonder if gold will even hold up - wouldn't that be hit too?

The value of gold and silver never wavers, which is exactly why it would have made sense to stay on a gold standard and continue to make use of silver and gold dollars.

The only reason that the price you can SELL gold and silver at appears to vary from year to year (and month to month, and week to week) is because of the instability of our valueless federal reserve notes. Technically, every time the supposed value of these notes decreases, the value of gold and silver within the same system increases.

For instance, if your parents or grandparents had saved a chest full of silver dollars that, at the time, had only been worth their face value and passed them down to you, you could now sell each of them for the current paper market value of that specific amount of silver.

FYI, the Coinage Act of 1792 says:

DOLLARS OR UNITS--each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.

Sorry if all of this obvious to you, but I wasn't quite sure what you were referring to.

[edit on 23-6-2008 by Majal]

reply to post by TruthWithin


Just curious how many HOes (Hindenburg Omens) there have been since they've been tracking?

Never heard of this before, but it's interesting. This particular HO isn't worth much if they get lots of HOes all the time, but choose to talk only about the HOes that occur shortly before a crash....


Also, the fact that there have been several HOes in the past few weeks might not signal an impending crash, but might be a sign of fundamental changes in the market, which will render the HO useless for future predictions of coming crashes.


Anyone?

My understanding of the Hindenburg Omen is that if there are a cluster of them then it only verifies that a crash is near (40 to 60 days). That coincides with the RBS warning of a crash at the end of July.

Like I posted before:

McHugh is big fan of Hindenburg Omens and is constantly watching for them. As the name implies, they aren't good, and therefore fit in perfectly with his view of the world. Unfortunately, there have been three since June-6. Apparently, one Omen is a warning, but two or several close together is a confirmed Omen with very negative implications

Originally posted by TruthWithin

The Hindenburg Omen - A Dire Economical Warning

Well, at least its "economical." Shouldn't cost much, right?

reply to post by reject



Nothing to contribute? Well at least you're wasting bandwidth!

Thanks for adding to the discussion!

Originally posted by TruthWithin
Where are all of the ATS economic scholars? I am dying to get their perspective on this!

I'm an armature economics geek .. here is my perspective..

I have been calling for the gradual decline in the general market indexes for a while (eh, probably since I joined the site..)

Which of course, I was bound to be correct one of these years, as the economy never shoots up without coming down!

But in all seriousness .. While calling out the markets as fraudulantly held above the water, and even Eire similarities between our markets and typical 1929 market crash ..

I don't believe in indicators.

For the simple reason that Economics, while an exact science, it still has infinite possible projections.

Take the Hindenburg Oman. Love the name by the way. 3.4% of the 5,000 days studied displayed the Oman, as it is for the most part a relatively common anomaly .. if it where more along the lines of .3% of the days studied, well I would sell my portfolio and buy a farm! .. BUT ..

3 Omans since June 6th .. which means we are due for a mega explosion in the markets right? While I believe we are anyways, I just cannot say this is in fact a true oman .. just because in the past 5,000 days there have only been 4 major stock drop sequences .. and 3.2% of 5,000 is much more then 4 very bad days.

WHAT IT DOES INDICATE:

Severe Market Volatility. Which, of course, is an ominous sign your economy is in trouble. When the markets no longer react to "normal" economic procedures, forsaking "normal" cause and effect .. it is left to be wildly speculative. The volatility is used of course, people make a killing off it.. some people loose everything off of it. It means your economy is severely unstable.

In 1929 we see a few things we see today. Naturally NO single event in history will be replicated to a T. Always there will be differences, but the concepts can be the same.

1929 Saw a rise in "average Joe" investing his savings in the economy. Any one and everyone owned something .. the brokers pandered to the CEO but also to the guy cleaning the CEO's floors, his gardener, the guy in the office who fixes the elevator.

2008 We see everyone owning stocks, online trading, everyone throwing money in 401(k) and IRA's, Variable products, even life insurance can own a portion of the economy! .. Why is this a bad thing? If you invest $2,000 and have decent credit )640 and above) you can own a Margin Account. A Margin Account takes the money you have times two, and then invest, once sold you pay back the share to the back plus interest and keep the profits. This would mean up to half the entire market is made up money from banks that never had that much to invest anyways .. WHAT caused the 1929 market crash? Cause and effect is endless, but in the end some major stock holders sold out, and the banks called the margins. A Margin can be called AT ANY TIME TO THE BANKS DISCRETION! .. LOOK AT THE BANKS. They are in trouble.. if they need quick cash infusions to save their own arses as the economy progressively worsens, the last resort is to call in the trillions in margin loans, resulting in a drastic reduction in supposed market values!

In 1929 we saw the extension of credit, again, to the Average Joe. Joe Schmo could get a loan for a new car, new house, farms, farm equipment, so on, so forth. Farmers where severely effected, when the credit dried up, they went broke. Now we have subsidised farming.

2008 We see EVERYONE having some form of credit! .. I have credit, had credit since I was 18 .. and I don't know a single person without several thousand in debts.. I mean hell, I just bought a 17k car.. I didn't have the money on hand (who does??) so I get a loan. If you subtract the amount LOANED to the public, erase most public debt, the economy would be set back 20 years at least .. because the money is speculative.. the banks give you money on the bet that EVENTUALLY you really will have the money!

Well just like in 1929 the banks are finding out -- the people don't, won't and sometimes simply can never have the money to pay back loans.

The over extension of credit is what lead to the run on the banks .. as the banks went insolvent, called in loans, people panicked and took what cash the banks had out of the accounts, so the banks called the margins as a last resort and the entire economy came down around their ankles.

2008 we are seeing the largest amount of banks and financial institutions going insolvent .. even resulting in a Fire Sale of Bear Sterns which, is unprecedented .. the Government is putting a heavy, heavy hand in the economy. Sadly, history tells us when a Government interferes with Capitalism it only results in a larger crash. Avoiding the inevitable is impossible!

And notice.. in 1929 the largest economic crash in our history .. was "cured" for lack of a better word, by war. The government went into major debt with public programs to feed and get people to work. In the end WWII killed off a large portion of the population, created hundreds of new markets, the American War Time Engine roared with efficiency and the economy essentially had a second birth.

Think of economies as a phoenix (no no.. stay with me and my lame arse analogy!) An economy grows .. but it cannot grow indefinitely .. everything that grows must eventually die. An economy will reach a certain level, and it will collapse.. it will be set back, sometimes worse then others. It then grows from that stage of the economic destruction, and almost always surpasses the old standard of "it cannot go any higher". The higher, faster and further an economy goes, the bigger the economic crashes. It will die, eventually, in a major economic depression, or collapse.. and then grow from there. Where an economy is so drastically over inflated, over valued, and driven on speculative betting that is no better then a illegal dog fight down a dark ally, the economy MUST "reboot"..

And note.. there is a difference as I always say, between war and economic distress, and the two are not always compatible, and do not lead to another.. rather typically they are only intertwined when through cause and effect one leads to the other.

That's my take Truth, I don't know if I am an ATS Economic Scholar, but I will be asking SO for a shiny button on my avy either way!

PS. I just realized I just spoon fed my debate enemy information to use against me.. lol

More bad .. bad news.

Stocks cut losses after initially slumping following the mid-morning release of the June consumer confidence index. Confidence fell to 50.4, the fifth lowest level ever, from 58.1 in the prior month. Economists thought it would fall to 56.

"It was a terrible report," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.

This set the markets into a nose dive.

"Clearly the message is that the tax rebates are not impressive in terms of how that relates to the future," Shapiro said, with investors realizing that the economic stimulus is a temporary fix.

But no fear!

While the early sell off was staved off by .. and I quote "people buying cheap stocks at a good deal" .. right after the fifth lowest consumer confidence report EVER ..

CNN




I give you .. the Plunge Protection Team.

[edit on 6/24/2008 by Rockpuck]

[edit on 6/24/2008 by Rockpuck]

Yes. And home sales are down a record 16%. Woohoo. Its going to be a bumpy ride.

I straight up killed this thread, huh?

reply to post by Rockpuck


LOL! No man, you didn't. You cant kill something that was never alive in the first place.

I guess this isn't that interesting of a topic! Stock market shmock market.

Im currently in training to be a financial advisor and i work for a large financial firm in the uk (which i shall not name!) If i had a penny for every person who asked me whether to withdraw there stock/shares or asked about the 35k government deposit protection (in the uk anyway) i would be an extremely rich man!
The way i see things at the moment is that we are in a stalemate on the housing front, no body wants to sell for fear of losing value to their property and no one wants to buy because they are expecting the house prices to drop!
my two pence
Dskys

Dow is down over 300 points to the lowest level in 2 years. All based on a barage of bad news.

Maybe there is more to this omen than I thought.