The Hindenburg Omen

[Jan Klimkowski]

Who sez traders don't just lurve dressing up fancy technical analysis with some good old fashioned Amityville Horror melodrama? :marchmellow:

The Hindenburg Omen is a technical analysis pattern that is said to portend a stock market crash. It is named after the Hindenburg disaster of May 6, 1937, during which the German zeppelin Hindenburg was destroyed.


History
The Omen is largely based on Norman G. Fosback's High Low Logic Index (HLLI).[1] The value of the HLLI is the lesser of the NYSE new highs or new lows divided by the number of NYSE issues traded, smoothed by an appropriate exponential moving average. The Omen itself is said to have originated with Jim Miekka[2], and the name was suggested by the late Kennedy Gammage.

[edit] Mechanics
The Hindenburg Omen is a combination of technical factors that attempt to measure the health of the NYSE, and by extension, the stock market as a whole. The goal of the indicator is to signal increased probability of a stock market crash.

The rationale is that under "normal conditions" either a substantial number of stocks may set new annual highs or annual lows, but not both at the same time. As a healthy market possesses a degree of uniformity, whether up or down, the simultaneous presence of many new highs and lows may signal trouble.

http://en.wikipedia.org/wiki/Hindenburg_omen