"Hindenburg Omen" spooks speculators Print E-mail
By Staff and Wire Reports   
Tuesday, 17 August 2010 07:04

Forget about Friday the 13th. Many on Wall Street took to whispering about an even scarier phenomenon -- the "Hindenburg Omen."

This according to an article which appeared in yesterday's editions of the Wall Street Journal.
The Omen's Criteria

The daily number of new NYSE 52-week highs and the daily number of new 52-week lows must both be greater than 2.5% of the total issues traded that day.

The smaller of the 52-week highs and lows must be greater than or equal to 79 (or 2.5% of 3,168 issues).

The NYSE's 10-week moving average must be rising.

The McClellan Oscillator, a measure of market fluctuations, must be negative.

New 52-week highs can't be more than twice the new 52-week lows. (However, it is acceptable for the new 52-week lows to be more than double the 52-week highs.)

According to the story by Steven Russolillo and Tomi Kilgore, Wall Street has been abuzz about whether the Hindenburg Omen will come to bear, with some traders cautioning clients about the indicator and blogs pondering all the doom and gloom. But Andrew Brenner, managing director at Guggenheim Securities, told his clients: "Personally, it sounds like [people] are starting their weekend drinking early."

Technical indicators, with names like "The Death Cross" and "The Bearish Abandoned Baby" have been attracting mainstream attention in recent months. Amid an increasingly volatile market, investors have been searching for any clues about stocks' direction, especially this past week where major indexes fell more than 3%.

The Omen was behind every market crash since 1987, but also has occurred many other times without an ensuing significant downturn. Market analysts said only about 25% of Omen appearances have led to stock-market declines that can be considered crashes.

"The Hindenburg Omen does show some deteriorating internals, which signals some major concerns," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "But it isn't a reason to move to 100% in cash. We're taking a wait-and-see approach, but considering its recent history, we're considering it more than other indicators."

To read more about the inventor of the technical indicator and readers' reactions to these developments, go to:

http://finance.yahoo.com/banking-budgeting/article/110355/hindenburg-omen-flashes

 

 




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