What is the Hindenburg Omen and Will a Stock Market Crash Follow?

The Hindenburg Omen gets its name from the ill-fated German flying ship of 1937. It is a technical indicator that supposedly predicts not only a stock market decline, but a crash. Recently, a number of commentators have said that the U.S. stock market has entered a Death Cross, the Bearish Abandoned Baby, and now, the Hindenburg Omen.

Jim Miekka, a blind mathematician, came up with the indicator in 1995. Originally he wanted to name it the Titanic indicator, but apparently that name had already been taken. Miekka writes the "Sudbury Bull & Bear Report" It has been activated in every market crash since 1987, but it has also shown up on occasions where no crash occurred.

What is the criteria behind the Hindenburg Omen? There really is only one mandatory thing involved: New 52 Week Highs cannot be more than twice the new 52 Week Lows. The other factors are indicators: The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day; The NYSE 10 Week moving average is rising; The McClellan Oscillator is negative on that same day.; The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 69.

Traders look at these factors because it takes into account unusual conditions, which often predicts large corrections and crashes. Other investors discount this and other technical indicators, often saying that it's just a cooncidence and Monday morning quarterbacking.

Apparently Hindenburg Omen conditions presented themselves last Thursday, August 12, 2010. Only time will tell if a crash will occur, or if it's simply another false positive.