{"id":5103,"date":"2024-06-01T00:03:30","date_gmt":"2024-06-01T00:03:30","guid":{"rendered":"https:\/\/businesstriumphs.com\/index.php\/2024\/06\/01\/hindenburg-omen-flashes-initial-sell-signal\/"},"modified":"2024-06-01T00:03:30","modified_gmt":"2024-06-01T00:03:30","slug":"hindenburg-omen-flashes-initial-sell-signal","status":"publish","type":"post","link":"https:\/\/businesstriumphs.com\/index.php\/2024\/06\/01\/hindenburg-omen-flashes-initial-sell-signal\/","title":{"rendered":"Hindenburg Omen Flashes Initial Sell Signal"},"content":{"rendered":"
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While the S&P 500 did manage to finish the week above tactical support at 5250, one of the most widely-followed macro technical indicators recently registered an initial sell signal for the second time in 2024.\u00a0Today we\u2019ll explain the three components of the Hindenburg Omen, show why this pattern is common at major market tops, and discuss the additional signals we\u2019d need to observe to confirm a bearish outlook for the S&P 500 using this powerful indicator.<\/p>\n

The Hindenburg Omen was created and popularized by market strategist Jim Miekka, and is based on three factors that he discovered were quite common at major market tops.\u00a0It\u2019s worth noting that a number of different versions of the Hindenburg Omen are used in the present day; here, we\u2019re describing the version used on StockCharts.com.<\/p>\n

First, the NYSE Composite Index ($NYA) needs to be in an uptrend.\u00a0In this case, we want to see the 50-day rate-of-change to be greater than zero.\u00a0This is an important first step, because we\u2019re only looking for a potential market top if the market is already in an established uptrend!<\/p>\n

The 50-day ROC for the NYSE Composite Index turned positive in November 2023, soon after the October 2023 market low.\u00a0This rate-of-change has remained above zero until just this week.<\/p>\n

Second, there needs to be at least 2.5% of NYSE members making new 52-week highs and at least 2.5% of NYSE members making new 52-week lows on the same day.\u00a0You may initial think that an extreme number of new highs would suffice, as that would imply some sort of \u201coverbought\u201d market condition.\u00a0Or perhaps an expansion in new lows would make sense, because then the market would have moved higher with weaker breadth conditions.<\/p>\n

But Miekka\u2019s analysis showed that market tops are usually marked by indecision, and, by looking for a situation where there are a healthy number of both new 52-week highs and new 52-week lows, we can confirm this unstable market state.\u00a0We can see in the chart that we saw 2.5% of new highs and new lows on the same day earlier in the month of May.<\/p>\n

One quick note: this is where different charting providers have used different settings for the Hindenburg Omen, ranging from 2.2% to 2.8% of NYSE listings as the threshold for this second factor.<\/em><\/p>\n

Finally, the McClellan Oscillator needs to turn negative, that is, break below the zero level.\u00a0This tactical market breadth indicator is based on the cumulative advance-decline line, and a break below zero represents a short-term bearish rotation in breadth conditions.<\/p>\n<\/p>\n

I\u2019ve color-coded this chart green to highlight positive breadth and red for negative breadth conditions over the past 12 months.\u00a0Note how we recently rotated back below the zero level, providing the final piece of evidence for an initial reading on the Hindenburg Omen.<\/p>\n

So what would make this a complete and confirmed Hindenburg Omen, similar to what we\u2019ve seen a previous major market tops?\u00a0It\u2019s important to observe a second signal within one month of trading, as Miekka found that multiple signals in a relatively short period of time tended to further validate the indicator.<\/p>\n<\/p>\n

Here, I\u2019ve isolated a \u201ccomposite\u201d indicator that tracks the three components outlined above.\u00a0When all three are firing, the indicator reads +3.0.\u00a0You\u2019ll notice the signal from last week, as well as the previous signal from February 2024.\u00a0Note that we never received that second confirmatory signal in February, so the Hindenburg Omen was never confirmed.<\/p>\n

When was the last time we had a valid and confirmed Hindenburg Omen?\u00a0In December 2021, just before the January 2022 market top, we experienced two sets of confirmed factors within one month.\u00a0Before that, the next previous signal was during the COVID peak in February 2020!<\/p>\n

So while this initial reading from last week does not fully confirm a Hindenburg Omen top, it should alert investors to be ready for the downside that often comes after a confirmed sell signal.\u00a0And while the indicator does not necessarily imply potential downside targets, a brief history lesson of the S&P 500 shows the previous signals have often preceded major market declines!<\/p>\n

<\/div>\n

RR#6,<\/p>\n

Dave<\/p>\n

P.S.<\/strong> Ready to upgrade your investment process?\u00a0Check out my free behavioral investing course<\/a>!<\/span><\/p>\n

David Keller, CMT<\/strong><\/p>\n

Chief Market Strategist<\/p>\n

StockCharts.com<\/p>\n

Disclaimer: <\/em><\/strong>This blog is for educational purposes only and should not be construed as financial advice.\u00a0The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.<\/em><\/p>\n

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

While the S&P 500 did manage to finish the week above tactical support at 5250, one of the most widely-followed macro technical indicators recently registered an initial sell signal for the second time in 2024.\u00a0Today we\u2019ll explain the three components of the Hindenburg Omen, show why this pattern is common at major market tops, and […]<\/p>\n","protected":false},"author":0,"featured_media":5104,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-5103","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stock"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/5103","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=5103"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/5103\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/5104"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=5103"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=5103"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=5103"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}