CHICAGO (Reuters) - Sometimes technical indicators seem named just to see how much fear they can provoke.
Take the “Hindenburg Omen,” an indicator that depends on a number of variables that was triggered on Thursday in the stock market, portending a sharp correction in coming months.
Named after the zeppelin disaster that took place over Lakehurst, New Jersey, in 1937, the pattern is a “rare but potent” sell signal, said Jay Shartsis, director of option trading at R.F. Lafferty & Co.
For this to be activated, it requires at least 2.2 percent of the market to reach new 52-week highs and 52-week lows on the New York Stock Exchange on the same day, which happened yesterday, suggesting a lack of conviction among investors.
However, it also needs to happen in a rising market, based on certain indicators, including a 10-week moving average of the NYSE Composite, which has to be rising.
Shartsis said the indicator “speaks for itself,” noting that when confirmed by a second occurrence within 36 days, “every crash (since 1985) was preceded by such a signal.”
Other strategists said they hadn’t heard of the indicator, which has been discussed on financial blogs during Friday’s trading.
Reporting by Doris Frankel; Writing by David Gaffen; Editing by James Dalgleish
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