And he’s out. The blind mathematician behind the Hindenburg Omen (you remember, that’s the technical indicator that tells us a stock market crash is nigh) tells the Wall Street Journal he’s gotten out of stocks a little more than a week before September, when this crash is supposed to happen.
Jim Miekka, who developed the indicator more than a decade ago, says its “sort of like a funnel cloud. It doesn’t mean it’s going to crash, but it’s a high probability. You don’t get a tornado without a funnel cloud.”
The Hindenburg Omen, named after the airship that exploded as it was docking in New Jersey in 1937, has preceded every crash since 1987, but it has also popped up plenty of times without any subsequent market decline. It resurfaced in mid-August and became popular fodder for various trading oriented blogs. It was triggered by two important statistical events. One, NYSE highs and lows both exceeded 2.5% — stocks reaching 52-week highs were 2.9% of stocks traded at the Big Board, while stocks hitting 52-week lows were 2.6%. And two, a rising 10-week moving average for the NYSE compared to a negative indicator that shows market fluctuations (the McClellan Oscillator).
The trends had to be reconfirmed, and they were last week.
It’s been a quiet, relatively boring summer compared to the previous two summers, but talk of an upcoming crash may be spooking investors. From May through July, investors have taken a net $44 billion out of U.S. domestic equity funds and billions more out of exchange traded funds focused on U.S. equities, according to Morningstar.
Traders like to obsess about indicators. Another one that got markets buzzing earlier this summer is called the Death Cross, in which a security’s long term moving average falls below its short term moving average. In July, the S&P 500′s 50-day average dropped to 1,122.48 compared with the 200-day mean of 1,112.22. The “bearish abandoned baby” is yet another one watched by technical traders. There is also the old “ dead cat bounce,” in which a stock in a downdraft sharply reverses course, usually because short sellers have to cover.
Got your own favorite indicator? Let us know.