Hindenburg Omens Flashing Major Warning Signal for the Stock Market
Today's chart comes from Jason Goepfert at SentimentTrader.com. Last month, Jason told FS Insider that sentiment readings were reaching extremes, even surpassing 2000 tech bubble-levels of euphoria, which was a "very troubling sign" for the stock market (see Rydex Trader Bullishness Surpasses 2000 Tech Bubble).
This most recent data looks at the total number of Hindenburg omens for the S&P 500, Nasdaq, Dow Jones Industrial Average, and the Russell 2000. In sum, "we're seeing a market that is split between winners and losers to a degree rarely seen in history," Jason wrote in yesterday's Sentiment Report.
You may be asking yourself, what is a Hindenburg omen? Here's what Investopedia has to say:
DEFINITION of 'Hindenburg Omen'
A technical indicator named after the famous crash of the German airship of the late 1930s. The Hindenburg omen was developed to predict the potential for a financial market crash. It is created by monitoring the number of securities that form new 52-week highs relative to the number of securities that form new 52-week lows - the number of securities must be abnormally large. This criteria is deemed to be met when both numbers are greater than 2.2% of the total number of issues that trade on the NYSE (for that specific day).
Additionally, they write:
Traders use an abnormally high number of 52-week highs/lows because it suggests that market participants are starting to become unsure of the market's future direction and therefore could be due for a major correction. Proponents of this indicator argue that it has been very accurate in predicting sharp sell-offs in the past and that there are few indicators that can predict a market crash as accurately.
For regular updates on market sentiment and other technical measures, we encourage our readers to follow SentimenTrader's daily reports and research. You can sign up for a free trial on their website (sentimentrader.com), follow them on Twitter @sentimentrader, or through their premium feed at $10/mo by clicking here.
About FS Staff
FS Staff Archive
|09/21/2017||Interview: Louise Yamada on Stocks, Tech, and Interest Rates||story|
|09/15/2017||Goldman's Tousley on Global Economic Expansion, International Small Caps||story|
|09/12/2017||Richard Sylla: Human Civilization at Momentous Turning Point With Record Debt Levels and Ultra-Low Interest Rates||story|
|09/06/2017||Equilibrium Models vs. the C-H-B Triad||story|
|09/05/2017||The Benefits of Living Abroad in Retirement||story|
|08/31/2017||Ned Davis: "We Are in the Very Late Innings"||story|
|08/29/2017||Is the US Economy Doing Just Fine?||story|
|08/28/2017||Institutional Money Following Bitcoin Into Space||story|
|08/24/2017||Fed Models Facing Technological Disruption||story|
|08/23/2017||Have We Seen the Peak in Housing and Autos?||story|