The Wall Streeters are buzzing about a possible mathematical sign of economic apocalypse. Called the Hindenburg Omen, it’s a formula that measures the probability of a stock market crash (defined as a 15 percent or greater decline). Hindenburg Omens have reportedly predicted every crash since 1985—though of course, the old correlation v. causation problem means that a Hindenburg Omen occurring doesn’t necessarily mean a crash is on the way.
The five criteria for a full-fledged omen—called a “confirmed” Hindenburg Omen—are as follows:
[T]he daily number of NYSE New 52 Week Highs and the Daily number of New 52 Week Lows must both be so high as to have the lesser of the two be greater than 2.2 percent of total NYSE issues traded that day…The traditional definition had two more filters: That the NYSE 10 Week Moving Average is also Rising, which we consider met if it is higher than the level 10 weeks earlier (condition # 2), and that the McClellan Oscillator is negative on that same day (condition # 3)…
Condition # 4 requires that New 52 Week NYSE Highs cannot be more than twice New 52 Week Lows, however it is okay for New 52 Week Lows to be more than double New 52 Week Highs…
The fifth condition…is that for a confirmed Hindenburg Omen…there must be more than one signal within a 36 day period, i.e., there must be a cluster of Hindenburg Omens (defined as two or more) to substantially increase the probability of a coming stock market plunge
Sure enough, June brought not only a 20-month low in the stock market but also a bona fide Hindenburg Omen. So what does it mean? According to John Nyaradi, “the bottom line here would indicate a 92 percent chance of at least a small decline on the Dow, a more than 75 percent chance of a greater than 5 percent decline, and a 65 percent chance of a panic selloff or crash.” Omens or no, we’d say there’s enough chance of that happening to convince even the biggest skeptic.
July 24th, 2008 at 6:29 pm
Is a Mathematical Formula Spelling Stock Market Doom?
Called the Hindenburg Omen, it’sa formula that measures the probability of a stock market crash (defined as a 15 percent or greater decline). Hindenburg Omens have reportedly predicted every crash since 1985—though of course, …
July 24th, 2008 at 8:30 pm
[...] Is a Mathematical Formula Spelling Stock Market Doom? By Melissa Lafsky Called the Hindenburg Omen, it?sa formula that measures the probability of a stock market crash (defined as a 15 percent or greater decline). Hindenburg Omens have reportedly predicted every crash since 1985?though of course, … Reality Base – http://blogs.discovermagazine.com/realitybase [...]
March 2nd, 2009 at 12:12 pm
I can not understand why the media is so very down on the market. It is tuly insane. The more negative you present the news the longer and harder the recovery that is just common sense. Sure there going to be a panic selloff when your out there scary people half to death.
That aint going make it better DAH And here is so more odd things I have noticed. some indcators are going up like consumer spending went up and so did incomes. but the gdp is down damn near to depression level. construction is down, real estate down, large banks on the verge of collapse but the some banks seem fine, Restaurants are still full, the malls are still full, Today in milwaukee the brewers had record ticket sales. There is a disconnect somewhere. Almost like we are being lied too. Like the government and coporate america has banded together to steal our stock wealth. Others are being to see it too. Dangerous game for the government to play. When the people find out OH MY GOD.
July 17th, 2009 at 1:09 pm
I partially agree with Jackie…There does seem to be a disconnect somewhere. Realestate is down, banks are collapsing and companies in industries that have been a major staple of American Tradition are being allowed to collapse without notice. It does however seem suspiscious that the US Government would pump over 1 trillion dollars of Tax Payer money into the very system that brought us the collapse. This is a debt that every American family will pay for. Why is it that the American people had no say in it’s execution. Why did we not get to vote on this unprecidented government move. It is our children who will be forced to repay the debt afterall. The government would have been better to give each family a 50,000 loan at zero percent intrest for 30 years with a repay rate of 1600 per year and a tax credit of 300 per person in the household to help repay the debt. With the tax breaks involved in the plan, for most American families the loan would have been a wash. This move would also have been unprecidented, but it would have put money back into banks, it would have boosted home sales to save the struggling realestate market, it would have stopped many of the forclosures that were already underway saving banks millions in forclosure costs, it would have boosted consumer spending, brought stabilization to the areas where the American economy needed it most and left the government with change in their pockets to boot. Economy stabilized in 6-12 months tops with no outside debt to repay! But why would a government refuse to put the money in the hands of the people and instead choose to invest into the resources that people depend on, in exchange for partial stake in them. Sorry people, but this bold and brazen move only spells out one word for me and it is sad to say, but the word is “CONTROL”.
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