It’s now been just over a month since the first sighting of the Hindenburg Omen — the fearsome indicator which supposedly foretells stock market crashes.
It does so by counting the number of NYSE stocks making new highs and new lows simultaneously. If the level is high, it supposedly suggests some critical dislocations in the market.
But most analysts believe it must be spotted at least twice (if not more) inside a month to be really indicative of anything.
As FT Alphaville has reported previously, the last Omen to appear before the financial crisis did so twice in June 2008, and at least once in July. Stocks promptly plummeted that autumn.
But with just four days to go before the complete 36-day window for Omen spotting expires… re-sighting reports have been very much confined to the blogosphere.
Yet in the opinion of some analysts, the Omen may never really have reared its ugly head the first time round.
As Elizabeth MacDonald at Fox Business News reports:
Never mind that the Omen is not right 10% of the time, only a quarter of the time. The Omen wasn’t triggered, say my Wall Street quant sources.
When you look at the trades that supposedly hit the news highs and lows, they were not stocks. Instead, “the vast majority of ‘stocks’ making new highs were interest sensitive closed-end funds, preferred stocks, or some other kind of fixed income product, which by my pencil are not stocks,” says Raymond James managing director Jeffrey Saut.
“Therefore I’ll say the same thing I said two weeks ago, I don’t think a Hindenburg Omen has been registered; and even if it has, its track record is spotty.”
In the meantime, stocks markets have pretty much recovered most of August’s losses:
But, of course, we won’t really be out of Hindenburg Omen watching territory until at least November. And that’s because, officially, the indicator has 120 days to anticipate a market crash.
We’ll have to keep watching.
Related links:
Hindenburg sighted… – FT Alphaville
‘Hindenburg’ Creator Sticks to Guns – WSJ