What Is the Hindenburg Omen?

The German airship known as the Hindenburg became one of history's most prevalent images of disaster when it burst into flames while landing in New Jersey in 1937.

It꧟ now shares its name with a technical indicator that can help traders predi൩ct and avoid a potential stock market crash.

Created by mathematician Jim Miekka and his friend Kennedy Gammage, this technical indicator, known as the Hindenburg Omen, can alert traders and investors to sharp co💝rrections from market tops.

It may help them to avoid major losses or even to profit from a decline before others ever see it comin𒆙g.

There are several indi🍨cators based on the theories of market 🏅breadth, but few have been regarded in the same light as the Hindenburg Omen.

In this article, you'll learn more about how this indicator functions and how its various signals may help you dodge disaster.

How the Hindenburg Omen Works

The Hindenburg Omen uses the basic premise of market breadth (see "Market Breadth Theories" below) by studying the number of 澳洲幸运5开奖号码历史查询:advancing/declining issues. But it gives the traditional interpretation a slight twist to suggest that the market is setting up for a large 澳洲幸运5开奖号码历史查询:correction.

Requirements

The Hindenburg Omen warning signal requires that:

1. On the same day, a certain threshold percentage of listings on an exchange makes a new 52-week high and a new 52-week low
2. The market be in a confirmed uptrend
3. A market breadth indicator (such as the McClellan Oscillator) turns negative by dropping below zero
4. A second signal confirms the first signal within a period of a month

The required threshold percentage of listing🍌s used has been reported variously as 2.2%, 2.5%, and 2.8%.

Interpreting 52-Week New Highs and New Lows

The disparity between new highs and new lows suggests that the conviction of market participants is weakening and that they are unsure of a security's future direction.

For example, assume that 156 of the approximately 3,394 traded issues on the NYSE (this number changes over time) re𝕴ach a new 52-week high today, whi☂le 86 experience new 52-week lows.

Dividing the 156 new highs by 3,394 (total issues) yields a result of 4.6% of listings. Dividing 86 (new lows) by 3,394 yields a result of 2.53% 𒁏of listings. Because both of the results are greater than a 2.2% benchmark, one criterion for the Hindenburg Omen has been met. Technical traders should look ✅for confirmation of the other criteria to predict a potential market downturn.

In the example above, if the number of new lows had been 70, rather than 86, then the threshold would not have been met because 70 divided by 3,394 is only 2.06%, which is below the required 2.ไ2%.

Confirming a Hindenburg Omen

With most technical indicators, signals should never be relied upon alone to generate transactions. They should be confirmed by otಞher sources or indicators.

As noted aꦰbove, t♐he developers of the Hindenburg Omen established other criteria to confirm the same day 52-week highs and lows warning sign.

Market Is in an Uptrend

The first method of confirmation is to ensure that the market is in an uptrend. For instance, the 10-week moving average of the 澳洲幸运5开奖号码历史查询:NYSE Composite Index should be risi▨ng. This can easily be monitored by creating a weekly chart of the index, and overlaying a standard 10-period moving average. If the slope of the line is upward, then the criterion for a potential correction is met.

Market Breadth Indicator Is Negative

The second confirmation presents itself when the popular breadth indicator known as the 澳洲幸运5开奖号码历史查询:McClellan oscillator has a negative value.

This oscillator is created by taking a 19-day 澳洲幸运5开奖号码历史查询:exponential moving average (EMA) and a 39-day exponential moving averag🧜e of the difference between the number of advancing and declining issues.

Once the two EMAs are calculated, they are subtracted from each other, and a negative reading is interpreted to mean that the number of new lows has been growing faster than it has in the past. This tells traders that the bears are taking contro📖l and that a potential correction could be on the way.

Number of New Highs vs. New Lows

Most traders will require that the number of new𒐪 highs not exceed twice the number of new lows when the signal is generated.

By monitoring the advancing and declining issues, traders can ensure that the demand for a broad range of securities is not slanted in the bulls' favor. A lack of securities trading near the upper end of their 52-ranges points to deficient demand in the market. This supports the prediction of a market move downward.

Two Signals in 30 Days

The final confirmation that traders w𒐪atch for is other tran🅰saction signals occurring in close proximity to the first.

A cluster of Hindenburg Omen sig🅺nals, generally deemed to mean two or more signals generated within a 30-day period, is interpreted to be more significant than only one.

Effectiveness of the Hindenburg Omen

Robert McHugh, CEO of , believed that the Hindenburg Omen appea♛red before all of the stock market crashes, or panic events, from about 1985 through 2006.

While a signal thꦡat can generate alerts to sharp market declines is appealing to all active traders, the 🐽Hindenburg Omen occurs less often than most traders might hope. According to McHugh, the omen only created a signal on 160 separate days—or 3.2% of the approximate 5,000 days that he studied.

On the other hand, financial services research company Morningstar reported that the Hindenburg Omen issued a warning in September 2024. It also noted that over the 10 years prior to 2024, there were 13 signal clusters (providing the multi-signal confirmation). Nine of these successfully predicted a market drop.

Market Breadth Theories

The underlying concepts of the Hindenburg Omen involve 澳洲幸运5开奖号码历史查询:market breadth theories, such as those develꦿoped by market greats𒁏 Norman Fosback and Gerald Appel.

Market breadth theories suggest that when markets are trending upward, or creating new highs, the number of companies forming 52-week🧜 highs should exceed the number that are experiencing 52-week lows.

Conversely, when the market is trending downward, or creatܫing new lows, the number of companies trading at the lowest🍒 end of their 52-week ranges should drastically outnumber the companies creating new highs.

The Bottom Line

Every trader longs to be ablᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚe to predict a stock market downturn in order to pꦍrofit from the decline or to protect some of their hard-earned profits.

No indicator can♈ predict these moves with complete certainty. Still, the Hindenburg Omen is nearly as good as it gets when it comes to being able to identify ☂these crashes before they happen.

By using this tool, traders and investors can improve🐻 the probabil🌞ity of spotting a potential market reversal before it occurs.