Yesterday I posted on the Lipstick Indicator. Today the ominous sounding Hindenburg Omen. It ain’t good kids.

Amplify’d from www.thestreet.com

Hindenburg Omen: Is a Stock Market Crash Imminent?

The Hindenberg Omen does have a decent track record. A UBS strategist told Bloomberg that the Hindenburg Omen signaled itself seven times in 2008, before the S&P posted its biggest annual drop since the Great Depression. A confirmed Hindenburg Omen has occurred prior to every major stock market crash since 1985, according to various market sources with their finger on the panic button.

That said, there are plenty of Hindenburg false alarms, too — and, for that reason, some analysts claim that it requires not just two, but between three and five Hindenburg events within a 14-day window to really send the signal to take the chips off the market table.

In the mood for some more Hindenburg Omen doomsday numbers? The probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, according to historical data quoted on Benzinga. It usually takes place within 40 days of the first Hindenburg event. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%.

Some fear that the Hindenburg Omen is a self-fulfilling prophecy. Convince enough investors that the Omen exists and they will start selling en masse, causing a market crash.

Anyone ready for a game of craps or roulette? Maybe we should just put all the money under the mattress at this rate and hope the Hindenburg doesn’t crash over our houses.

One can argue that regardless of the Hindenburg Omen or not, more accepted technical indicators are not looking particularly good, so any equity investor out there who isn’t already cautious probably will watch their portfolio crash and burn.

Putting market voodoo aside for the moment, the Standard & Poor’s 500 Index decline between Tuesday and Thursday was its largest since July 1. Federal Reserve chairman Ben Bernanke recently described the economic outlook as “unusually uncertain,” and this week when the Fed decided to directly stimulate the economy for the first time in a year, it gave as a reason that growth “is likely to be more modest” than previously forecast.

These aren’t exactly the type of comments that one would describe as fanning the flames of market paranoia, but they could add a little hot air to the zeppelin’s ride.

Jason Goepfert at Sentimentrader.com told RealMoney’s Rev Shark that the Hindenburg Omen does have a fairly good track record of predicting weakness, especially when there are a cluster of such Omen days in a short time frame. The average return of the S&P 500 three months after the Omen is triggered is a loss of 2.6%, and the market was positive only 29% of the time.

Read more at www.thestreet.com


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Cheryl Prater

Managing Director

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The views expressed on this site are solely mine and do not necessarily reflect those of my clients. Please don't hold them responsible. Momma tried.
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