Wikipedia has a full explainer, as does Investopedia. The Omen kicks in if the markets simultaneously show a peak for new annual highs and and lows.
But briefly, the Hindenburg Omen kicks in if:
- New annual highs and lows on the NYSE are both greater than 2.2 percent of total NYSE issues traded that day.
- The 10-week moving average on the exchange is rising.
- The McClellan Oscillator is negative on that same day.
- The number of new annual highs is no more than twice the lows (although lows can be more than double the highs -- go figure!.
That's it. Simple as Doc's device for feeding Einstein in Back to the Future.
Jim Cramer certainly isn't convinced -- but the man hates technical analysis, poor soul.
In this case, however, I must take my stand with Jim: The Hindenburg Omen isn't anything I would hang my portfolio on. I'm not a fan of World Destroying Apocalyptic Market Analysis.
The omen smells like a Tinkerbell signal to me: If everyone believes, then it will happen.
If a crash is about to happen, price patterns and my other signals (parabolic sar, macd, fast stochastic) will give warning of a trend change. That's plenty for my work.