The Hindenburg Omen

Here's a chilling note for the weekend: A technical stock market indicator named after the doomed German airship points to a possible crash in September. The Hindenburg Omen was developed by a blind mathematician named Jim Miekka and is a formula that uses stuff like moving stock averages and 52-week highs and lows to determine whether we're headed for real trouble. Anyway, this was the week that all his measurements somehow became aligned. From the WSJ:

There were 92 companies that hit new 52-week highs on Thursday, or 2.9% of all companies traded on the New York Stock Exchange. There were also 81 new lows, or 2.6% of the total. Each number must exceed 2.5% for the Omen to occur, according to Mr. Miekka. Other criteria include a rising 10-week moving average for NYSE and a negative McClellan Oscillator, a technical indicator that measures market fluctuations. Mr. 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.

Before you start to freak out, let it be known that the Omen has happened many times without there being a crash. In fact, analysts figure that it has been accurate in predicting significant downturns only one out of four times. That has many Wall Street analysts pooh-poohing the whole thing (the folks who follow the technical charts often get ostracized for the way they look at the markets).

"The Hindenburg Omen does show some deteriorating internals, which signals some major concerns," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "But it isn't a reason to move to 100% in cash. We're taking a wait-and-see approach, but considering its recent history, we're considering it more than other indicators."

Of course, context is everything, and we happen to be going through an unsettling period that has many investors staying on the sidelines with cash. In this climate, the doom and gloom scenarios tend to gain traction. And if you think this is scary, check out Jeffrey Goldberg's piece in the Atlantic about the possibility of Israel attacking Iranian nuclear installations. That will really get your heart racing.