From Investopedia: 2024-06-07 08:19:39

The Hindenburg Omen is in focus as the S&P 500 nears all-time highs, warning of market indecision before potential crashes. Created by James R. Miekka, the indicator suggests looking for multiple signals in a short period to reduce false alarms in predicting significant market drops. However, it only forecasts accurately 25% of the time.

Wall Street is taking notice of the recent Hindenburg Omen sell signal with the S&P 500 soaring over 12% since the start of the year. The indicator, named after the doomed German airship that crashed in 1937, warns of market indecision before potential crashes, but it only correctly forecasts significant market drops 25% of the time.

While the Hindenburg Omen correctly predicted past market crashes, it also produced many false signals. Investors are advised to take note when the signal fires, as it has a track record of calling major market tops, but caution is needed due to the high rate of false signals.

To generate a Hindenburg Omen signal, four conditions must be met: the number of 52-week highs and lows exceeds a threshold, highs are not more than two times lows, the index is in an uptrend, and the McClellan Oscillator turns negative. Assessment of these factors can help determine if a sell signal is imminent.

On Thursday, June 6, 2024, the S&P 500 did not trigger the Hindenburg Omen signal as conditions one and two were not met. The 50-day ROC indicator confirmed an uptrend, but the number of highs and lows did not meet the required thresholds. Traders should use the signal with caution and validate with other indicators before making investment decisions.



Read more at Investopedia: An Ominous Signal—the Hindenburg Omen—Is in Focus as Stocks Hit Record Highs