Omen, or “Oh, Man!”?
Tuesday, April 27th, 2004 10:45pm EST
An Undeserved Omen
Bottom Line: The “Hindenburg Omen” is one of those pieces of market lore, predicting a crash, that more appropriately belongs on the bench.
Something I’ve been asked about a few times in the past week is an ominous-sounding signal called the “Hindenburg Omen”. Getting background information on its discovery is difficult at best, and quite frankly I’m not sure to whom it should be attributed. I’ve seen references to Norman Fosback, Ian McAvity, Kennedy Gammage and – I’m serious – a blind math genius in Florida by the name of Jim Nieska. Just as there are varying interpretations of who invented the signal, there are variations on how it should be computed. To simplify things, I’ll just go with Ian McAvity, whose suggestion is to look at a 5-day moving average of new highs and new lows on the NYSE. If both moving averages are greater than 2.4% of the total number of stocks traded, then we have a Hindenburg Omen. The theory is that a great deal of uncertainty in the market, characterized by a large number of new highs and new lows at the same time, occurs before major market meltdowns. As usual, this is true (but only a little bit).
The usual examples given for this phenomenon are the ones that occurred before the crash in 1987, before the sharp drop in 1990, before the mini-crash in 1998, near the top of the bubble in September 2000, before 9/11 in September 2001, and lastly before the waterfall decline in July 2002. Just looking at those examples, it makes one shiver – it’s uncanny how the market slid precipitously soon after such signals. Unfortunately, or fortunately depending on how you look at it, that’s only half the truth. Typically, examples that go against the theory are simply left out, like the one at the low in March 2001, or the low in October 1998, or the low in December 1991, or – and this is the best one – the one that occurred very near the ultimate low in July 1982. It is coming up now because the signal occurred nine days ago on 04/14/04.
Instead of giving you my opinion on what this signal may or may not mean, below is a table showing every Hindenburg Omen since 1965.
|
Hindenburg Omens 5-Day New Highs and 5-Day New Lows Both at Least 2.4% of Total Issues 1965 - 2004 |
|||||||||
|
Date of Signal |
New Highs |
New Lows |
10 Days Later |
30 Days Later |
60 Days Later |
90 Days Later |
120 Days Later |
252 Days Later |
|
|
03/31/65 |
3.7% |
2.4% |
2.4% |
4.8% |
-3.6% |
-0.3% |
4.2% |
3.0% |
|
|
11/23/65 |
5.7% |
2.4% |
-0.5% |
1.4% |
1.0% |
-2.0% |
-8.0% |
-13.2% |
|
|
05/31/67 |
2.7% |
3.0% |
3.7% |
3.7% |
4.5% |
9.2% |
2.9% |
12.2% |
|
|
10/11/67 |
6.3% |
2.5% |
-1.9% |
-2.6% |
0.1% |
-5.3% |
-2.6% |
9.1% |
|
|
03/29/68 |
2.6% |
6.8% |
7.1% |
8.8% |
10.2% |
9.4% |
14.8% |
16.5% |
|
|
03/27/69 |
2.6% |
6.0% |
0.5% |
3.7% |
-3.7% |
-7.0% |
-5.8% |
-11.3% |
|
|
09/22/69 |
2.5% |
5.0% |
-2.4% |
1.6% |
-6.2% |
-10.4% |
-8.1% |
-13.6% |
|
|
03/25/70 |
2.6% |
5.2% |
-1.4% |
-11.1% |
-14.8% |
-13.1% |
-8.6% |
11.7% |
|
|
05/13/71 |
2.7% |
2.4% |
-3.2% |
-4.6% |
-8.9% |
-3.3% |
-9.3% |
2.7% |
|
|
10/06/71 |
2.7% |
2.5% |
-4.2% |
-7.0% |
2.3% |
5.3% |
7.5% |
10.5% |
|
|
03/22/72 |
3.2% |
2.7% |
2.5% |
-0.6% |
1.4% |
0.5% |
1.5% |
2.8% |
|
|
10/26/72 |
2.5% |
3.3% |
2.5% |
7.3% |
4.9% |
2.6% |
-0.9% |
-1.5% |
|
|
01/16/73 |
2.8% |
2.8% |
-1.8% |
-6.0% |
-4.7% |
-8.6% |
-12.4% |
-19.0% |
|
|
01/03/74 |
2.6% |
3.0% |
-2.5% |
-8.9% |
-5.8% |
-9.2% |
-10.8% |
-29.6% |
|
|
05/25/76 |
2.6% |
2.4% |
-0.8% |
4.5% |
3.9% |
4.7% |
0.4% |
-1.8% |
|
|
03/18/77 |
4.6% |
2.8% |
-2.6% |
-2.9% |
-2.0% |
-3.0% |
-5.4% |
-10.8% |
|
|
05/25/78 |
3.3% |
2.5% |
3.2% |
-1.6% |
7.3% |
6.0% |
-4.5% |
3.2% |
|
|
10/04/79 |
4.6% |
2.5% |
-6.0% |
-5.5% |
-2.0% |
7.0% |
-10.4% |
16.3% |
|
|
07/16/82 |
2.7% |
2.9% |
-3.6% |
5.4% |
21.1% |
20.8% |
27.8% |
49.5% |
|
|
07/23/86 |
2.6% |
2.7% |
-0.8% |
6.4% |
0.4% |
4.4% |
8.9% |
29.2% |
|
|
09/28/87 |
2.6% |
3.1% |
-4.3% |
-24.8% |
-22.7% |
-22.0% |
-16.1% |
-16.8% |
|
|
10/16/89 |
2.5% |
4.4% |
-2.3% |
0.9% |
1.7% |
-5.5% |
-0.8% |
-11.6% |
|
|
07/12/90 |
3.5% |
2.4% |
-2.6% |
-16.0% |
-14.8% |
-13.2% |
-10.7% |
3.2% |
|
|
12/06/91 |
2.5% |
2.5% |
2.1% |
8.8% |
8.0% |
9.8% |
9.6% |
14.0% |
|
|
02/23/94 |
2.9% |
2.5% |
-0.8% |
-4.2% |
-3.4% |
-5.2% |
-1.2% |
3.4% |
|
|
10/26/95 |
3.5% |
2.4% |
2.9% |
7.1% |
6.3% |
13.1% |
11.6% |
21.8% |
|
|
12/15/97 |
3.8% |
2.6% |
0.8% |
2.3% |
10.9% |
12.8% |
16.1% |
20.7% |
|
|
06/26/98 |
2.5% |
3.2% |
2.8% |
-4.4% |
-9.1% |
-2.0% |
2.5% |
17.5% |
|
|
10/05/98 |
2.4% |
7.6% |
7.5% |
14.9% |
24.6% |
24.4% |
32.5% |
31.6% |
|
|
04/12/99 |
2.5% |
2.7% |
0.1% |
-3.8% |
2.7% |
-1.9% |
-5.6% |
11.6% |
|
|
11/17/99 |
2.4% |
3.2% |
-0.1% |
4.1% |
-1.5% |
6.9% |
-2.0% |
-1.5% |
|
|
09/19/00 |
3.5% |
2.5% |
-2.3% |
-2.1% |
-6.8% |
-6.6% |
-18.0% |
||