The Hindenburg Omen is materializing in the stock market, raising hackles among some market participants who closely watch for patterns that may portend ill for a stock market that has been knocking on the door to fresh highs.
Named after the German dirigible that notoriously exploded in 1937, the Hindenburg Omen is formulated to predict market crashes, or severe downturns, by synthesizing data, including 52-week highs and lows as well stock moving averages on the New York Stock Exchange. It was created by Jim Miekka, a blind mathematician, marksman and teacher, who died about four years ago. Miekka claimed that his indicator had been an accurate predictor of every market crash since 1987 on.
But as a number of market participants have noted, an appearance of the so-called Hindenburg Omen, hasn’t always resulted in an unraveling of the equity market.
A jump in the number of stocks hitting 52-week lows and highs on the New York Stock Exchange has been a key feature, among others, used to calculate the bearish pattern. Jason Goepfert, president of Sundial Capital Research, highlighted in a recent note cited by Bloomberg News that he has observed a clutch of such high/low moves on the NYSE and the Nasdaq, which can signal a degree of market indecision that can result in a broader market break down.
A market’s propensity to produce more new lows than new highs suggests that market breadth is deteriorating, which can also be interpreted as a warning sign in stocks.
Bearish market predictions come as the S&P 500 index SPX, -0.03% is within shouting distance of a fresh record