Hindenburg Omens

Named for the Hindenburg disaster, this technical setup in the markets tends to lead sharp selloffs and Bear markets. See the wiki page for all the details. 

Hindenburg Omen (HO) technical setups used to work just fine. But then the various markets (including 2 I look  at for Hindenburg Omen setups, the NYSE and NASDAQ) added ETFs. So now the number of new highs and lows includes ETFs which can be ANYTHING.

The solution is quite simple, stockcharts.com has a stock only new highs/lows (!NEWHINYC/!NEWLONYC and !NEWHINAS/!NEWLONAS). Using these values for new highs and lows, I did not find a single “false” trigger from 2009 until mid 2014.

I also allow a loosening of the standards for new highs/lows and allow NYMO/NAMO to be positive for these near HOs. All get plotted onto my charts but are noted differently in my spreadsheet.

At the end of November 2014 and December 2014, we got a total of 8 signals, followed by 9 more in January of 2015. When many signals occur together, I call them HO clusters. By this point I was able to make my call that a new Bear Market would start within 12 months. Of course one did begin in May 2015. Subsequent signals USUALLY occur before a sizable drop in the markets.

So why does this indicator act the way it does? Well, HO signals show periods when mania buyers love their “name” stocks, but the underbelly shows significant carnage is occurring in select sectors or brands. The carnage in the more economically sensitive names ends up bleeding into even the favorite stock names as the economy falls into recession.

I’ll post my current signals (vertical black lines) dating back to 2006. Notice while the signals were quite accurate in 2007-2008 there were not huge numbers of them. This is quite different beginning in late 2014. Why? I have theories ranging from everything just ended up collapsing so quickly the market was more in unison, to the unfolding Bear Market will be the worst once in many decades. Both may end up being right.