Investors Shouldn’t Fear the ‘Hindenburg Omen’ in the NASDAQ

Analysts just spotted two ominous patterns in the NASDAQ.

In fact, as noted by MarketWatch, the dreaded Hindenburg Omen, and an Ohama Titanic Syndrome are making their presence known.

The Hindenburg Omen

The Omen has been used to predict market crashes, or near-term downtrends.

To spot it, we look for a daily number of NYSE new 52-week highs and the daily number of 52-week lows must both be greater than a threshold of 2.2%.  In addition, 52-week highs cannot be more than two times the 52-week lows, and the index should be in an uptrend.

At the same time, the McClellan Oscillator must be negative along with everything else.

However, we must consider that a single spotting of the Omen is not absolute.  Markets must have a second sighting for confirmation. For it to be confirmed, it must appear a second time within 36 days of the first signal.  For example, on a second sighting in May 2019, the Dow slipped from 25,751 to 24,680.   

Omaha Titanic Syndrome

Created by Bill Omaha in 1965, it’s viewed as a “preliminary sell signal,” notes MarketWatch.  In this situation, when lows surpass highs within seven days of a one-year peak for an index, the Syndrome signal is triggered.

While these indicators may make an appearance, they have always resulted in a sizable pullback.  In fact, after the Dow slipped in May 2019, it quickly recovered to new highs.

Still, these are important to watch, as signs of exhaustion begin to appear.

If you look at a two-year chart of the NASDAQ, we can clearly see signs of over-extension.  Not only is the index struggling at its upper Bollinger Band (2,20), it’s excessively overbought above 70 on relative strength, on MACD, and above 20 on Williams’ %R. 

It’s only a matter of time before markets see some profit taking, as investors become too greedy.  Remember, as Warren Buffett has noted, a “a euphoric world is your enemy” and “be fearful when others are greedy and greedy when others are fearful.”

Previous

Next