Projections of significant price declines, based on the ‘Hindenburg Omen’ are making the rounds today. Yet our diagram shows that the market did not fall after the last four of these technical signals.
True, there was a correction in 2005 following this omen but prices recovered then moved higher shortly thereafter.
As for the other three warnings, shown by the red vertical lines, there were strong gains – there were no losses.
The ‘Hindenburg Omen’ so named after the instant fiery explosion of that airship in the 1930’s bases its forecasts on new highs and new lows. It forecasts price declines when both occur together and when other technical factors align with this signal.
Its underlying logic claims that such opposite price changes are contradictory and therefore indicates a lack of direction that ultimately leads to a bear market.
This logic bears a similarity to our concern when prices swing up and down on successive days, as today’s fourth direction change in as many days. Yet of the 11 such happenings in this, since March 2009, expansion only one significant decline followed.
DJIA .92 percent
NASDAQ .27 percent
S&P500 .59 percent
