The 'Hindenburg Omen' Is Seen. Will a Stock Crash Follow?

stock marketWall Street is whispering about the "Hindenburg Omen." It's an ominously named technical indicator that is supposed to signal an upcoming stock market crash. "Its creator, a blind mathematician named Jim Miekka, said his indicator is now predicting a market meltdown in September," reports The Wall Street Journal.

The S&P 500 completed on Friday the biggest three-day decline since July 1. The wobbly stock market has investors worried and searching for clues on the market's direction.

Doom or Drinking?

Some traders are warning clients about the indicator, and some blogs are all doom and gloom. The indicator may suggest "a savage equity downturn is imminent," Bloomberg quotes Albert Edwards, a London-based strategist at Societe Generale SA, as saying.

But the Journal cites Andrew Brenner, managing director at Guggenheim Securities, telling his clients: "Personally, it sounds like [people] are starting their weekend drinking early."

According to the Journal:
The confluence of data used by the Omen was officially tripped this week. There were 92 companies that hit new 52-week highs on Thursday, or 2.9% of all companies traded on the New York Stock Exchange. There were also 81 new lows, or 2.6% of the total. Each number must exceed 2.5% for the Omen to occur, according to Mr. Miekka. Other criteria include a rising 10-week moving average for NYSE and a negative McClellan Oscillator, a technical indicator that measures market fluctuations.

The Hindenburg Omen's track record hasn't been sterling -- it was behind every market crash since 1987, but also has occurred many other times without a big downturn following. The Journal reports, "Market analysts said only about 25% of Omen appearances have led to stock-market declines that can be considered crashes."

When the publication asked Omen creator Miekka if investors should bail out of the market now, he replied: "I'll be dancing close to the door."

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