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Great Depression Online Archive Issue:

The Hindenburg Omen and the Looming Market Crash

Great Depression Online
Long Beach, CA
August 17, 2010

Inside This Issue You Will Discover…

*** The Hindenburg Omen
*** A 25-Percent Chance of Decline
*** The Hindenburg Omen and the Looming Market Crash
*** And More

The Hindenburg Omen

When the Hindenburg conflagrated in Lakehurst, New Jersey, on May 6, 1937, not only did it result in numerous fatalities…it destroyed public confidence in the passenger airship and effectively ended the airship era.  Nonetheless, this is just one example of the many callous events that happen, which to most would be unimaginable or unthinkable prior to their occurrence.

It is highly likely that there were numerous warning signs portending the Hindenburg’s ultimate fate.  Yet, sometimes, it takes someone with the heightened imagination and lucid vision of a blind man to see the warning signs and what they foretell.

Last Thursday, while the market was doing its best to stabilize following the prior day’s selloff, something ominous happened. Though most didn’t notice it, those who did felt their knees go weak and an icy chill go down their spine.

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~~~~~~~~~~~~~~~~~~~~~~~~~

Some years ago Jim Miekka, a blind man, observed that under normal stock market conditions either (1) a substantial number of stocks set new annual highs; (2) a substantial number of stocks set new annual lows; (3) Conditions 1 and 2 cannot both take place at the same time, it is either one or the other – but not both.

Occasionally, however, stock market conditions are not normal…and a substantial number of stocks set new annual highs at the same time that a substantial number of stocks set new annual lows.  Miekka called this abnormal condition the Hindenburg Omen.  According to him, when this phenomenon occurs, along with several other technical indicators thrown into the mix for good measure, a stock market crash follows.

A 25-Percent Chance of Decline

Last Thursday the Hindenburg Omen was triggered.

“The confluence of data used by the Omen was officially tripped this week [last Thursday],” reported Dow Jones Newswires.  “There were 92 companies that hit 52-week highs on Thursday, or 2.9-percent of all the companies traded on the New York Stock Exchange.  There were also 81 new lows, or 2.6-percent of the total.  Each number must exceed 2.5-percent for the Omen to occur, according to Miekka.

“Other criteria include a rising 10-week moving average for NYSE and a negative McClellan Oscillator, a technical indicator that measures market fluctuations.  Miekka said the appearance of one signal is usually an indication of a market top, but the Omen becomes more accurate when there are two or more close together.”

Does this mean the stock market will crash any day now?

“The Omen was present at every market crash since 1987, but has also occurred many other times without an ensuing significant downturn.  Market analysts said only about 25-percent of Omen appearances have led to stock-market declines that can be considered crashes.”

The Hindenburg Omen and the Looming Market Crash

Omens, of course, are the stuff of the ancients.  For example, the Romans believed that nightmares were omens of bad luck. In today’s modern world, however, omens must not be entirely dismissed; rather they must be viewed with careful suspicion.

There is causality and there is coincident.  Outcomes are the result of cause and effect relationships or just plain random events.  From what we gather, the Hindenburg Omen’s occurrence before every market crash over the last quarter century may just be a mere coincidence.

Regardless, the next market crash is coming…you can just feel it.  Though it will not be the result of a technical indicator being tripped; more accurately it will be the broad realization that future earnings do not support current prices.  For while the stock market’s sustained an epic rally over the last 18-months the economy’s recovery has been a lackluster attempt by the Treasury and Federal Reserve to contrive a boom.

So, for what it’s worth, the occurrence of the Hindenburg Omen last Thursday foretells a highly likely coincidence that a market crash will occur in the near future.

We suggest you plan accordingly.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  Most 401K’s are invested in mutual funds that track the S&P500.  So if you’re counting on a 401K to fund your retirement you’re likely in trouble.  Over the last 5-years the market’s returned a loss.  What’s more, over the last 10-years the market’s also returned a loss.  But that’s not all.  Social Security is now paying out more than it takes in.  In other words, its days are numbered.  But that doesn’t mean you shouldn’t get the retirement you deserve.  In fact, there’s a little known Government backed “pension program” that a small group of savvy investors have been collecting from since 1972.

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