The Hindenburg Omen is a technical indicator that signals a higher likelihood of a stock market crash.
It measures the percentage of new 52-week highs and lows against a set reference percentage. The simultaneous occurrence of new highs and lows suggests a statistical anomaly from the norm, potentially foreshadowing a stock market downturn.
The four main criteria for a Hindenburg Omen signal
- The daily number of new 52-week highs and 52-week lows in a stock market index must be greater than a threshold amount (typically around 2.2%).
- The ratio of 52-week highs to 52-week lows cannot be more than two times.
- The stock market index must still be in an uptrend (determined using a 10-week moving average or the 50-day rate of change indicator).
- The McClellan Oscillator (MCO), which measures the shift in market sentiment, must be negative.
Once the criteria are satisfied, the Hindenburg Omen remains active for 30 trading days, and any subsequent signals within this time frame should be disregarded.
Confirmation of the Hindenburg Omen occurs if the McClellan Oscillator (MCO) stays negative throughout this period, while a positive MCO invalidates it.
Traders typically employ this indicator alongside other technical analysis methods to determine optimal selling times. However, it’s crucial to remember that the Hindenburg Omen is not infallible and should be used in conjunction with other market factors.