Last Friday, everyone was abuzz about the “Hindenburg Omen” — a string of stock market events that take place within a short period of time, and are thought to foreshadow a market crash.
There are four key criteria to the Hindenburg Omen. Miller Tabak’s Jonathan Krinsky says the gist is that it’s “a battle between the bulls and bears” where 2.2% of stocks on the NYSE are making 52-week highs during a bull market, and where another 2.2% are making 52-week lows.
Krinsky first alerted his clients to this last week. And on Talking Numbers he argues that there has been historical precedent for this:
“All the criteria that make it up just make a Hindenburg signal. You actually need multiple signals within a 30-day period to make an omen. In August 2010 people were calling that as a false signal because we only got one. We did not get multiple in a short period of time.
We have to go back to the Fall of 2007 when we did actually get a cluster of these signals and that actually turned out to be quite accurate.”
Many however think this is balderdash.
Jeff Saut of Raymond James says we’ve had 12 Hindenberg Omens in the past 13 years, and only one of them has actually worked.
“The last one was in December of last year and it proved to be a really good time to buy stocks,” said Saut.
“I think dips are for buying,” Saut continued. “I think stocks trade higher into the end of the quarter as the under-invested portfolio managers chase the performance derby, and the first point of real vulnerability comes in mid-July.”
We’ll have to wait and see if the Hindenburg Omen comes true.
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