Is it time to start worrying about the 'Hindenburg Omen'?

hindenburg.jpgThat would be a type of technical market indicator named after the 1937 airship disaster. As you might guess, it's not a good thing, pointing to a potentially big drop in stocks. The key word here is potentially. (By the way, other scary sounding technical indicators include "Death Cross" and "Bearish Abandoned Baby.") The Hindenburg Omen measures when a large number of securities have been making new highs and lows. Over the past 50 days, it's popped up 11 times. Should we be worried? Depends on who you ask. From the FT:

The recent sightings coincide with record highs on the S&P 500, but with the looming prospect of the Federal Reserve tapering its monetary stimulus that has lifted riskier assets like stocks. That has fed a sense of bearishness among some investors, who say it may be time to take the Omen seriously. "It's noteworthy," says Art Cashin, veteran stockbroker at UBS and a floor manager at the NYSE. "It says the market may have a significant sell-off, not that it must. It bears watching because you had clusters like this before the top of the market in 2007, and you had clusters like this as the dotcom bubble came apart." While the Hindenburg Omen has gained a cult following among certain stock traders, it has also been heavily criticised by others for being little more than a well-named headline-grabber of little value to investors. "It's just a technical signal that is far better for sound bites and articles than it is for investment purposes," says Adam Grimes, chief investment officer at Waverly Advisors. "It does come around turning points, but it also just comes at random points in the market - a lot."

The stock market just so happened to have had a bad day, with the Dow dropping 225 points, to 15,112. That's still up more than 15 percent year to date, which is really good - and today's drop didn't seem to be based on any terrible news. If anything, the recovery has yet to pick up much speed, which would suggest that the Federal Reserve's economic pumping is likely to continue - what would seem to be a bullish sign. But as we know the market acts in unpredictable ways, and so what seems bullish or bearish does not always materialize.


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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
 
Mark Lacter, business writer and editor was 59
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