Upload
nguyenthuan
View
218
Download
5
Embed Size (px)
Citation preview
DISCLAIMER: Stocks and options trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the stocks and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell stocks or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this report. The past performance of any trading system or methodology is not necessarily indicative of future results. All trades, patterns, charts, systems, etc., discussed in this report are for illustrative purposes only and not to be construed as specific advisory recommendations. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.
Copyright © by Profits Run, Inc.
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any
means, electronic, or mechanical, including photocopying, recording, or by any information storage and
retrieval system.
Published by: Profits Run, Inc.
28339 Beck Rd Unit F1 Wixom, MI 48393
www.profitsrun.com
www.profitsrun.com 2
Table of Contents
Introduction ............................................................................................... 3
The Hindenburg Omen ............................................................................. 3
The Indicator Behind The Omen .............................................................. 3
Criteria of The Hindenburg Omen ............................................................ 4
Market Crashes Correctly Predicted By The Omen ................................ 5
False Positives .......................................................................................... 6
The Man Behind the Omen ....................................................................... 6
Conclusion ................................................................................................ 6
www.profitsrun.com 3
Introduction
In the 1937, a German airship caught fire while attempting to
dock with a tower. The entire vessel was quickly consumed by
flames and crashed to the ground – killing 36 people. The
event was one of the first disasters to be caught on film and the
accompanying news coverage made the entire event a
worldwide media sensation. To this day, the name of the vessel
– The Hindenburg – is synonymous with disaster.
The Hindenburg Omen
Named after the ill-fated German airship of 1937, The Hindenburg Omen is a feared
technical indicator that can signal an upcoming stock market crash. The theory states
that when the Omen “appears” or is active, the market is likely to crash. The omen has
appeared prior to past crashes, but it is known for generating false positives as well.
The Indicator Behind The Omen
The Hindenburg omen uses the basic premises of market breadth by studying the
number of advancing/declining issues, but gives the traditional interpretation a slight
twist to suggest that the market is setting up for a large correction.
The theory is largely based on Norman G. Fosback's High Low Logic Index (HLLI). The
value of the HLLI is the lesser of the NYSE new highs or new lows divided by the
number of NYSE issues traded, smoothed by an appropriate exponential moving
average.
The Hindenburg Crash, 1937
www.profitsrun.com 4
This indicator gives a warning signal when more than 2.2% (as high as 2.8% according
to some) of traded issues are creating new highs while a separate 2.2%, or more, are
creating new lows. The disparity between new highs and lows suggests that the
conviction of market participants is weakening and that they are unsure of a security's
future direction.
For example, assume that 156 of the approximately 3,394 traded issues (this number
changes over time) on the NYSE reaches a new 52-week high today, while 86
experience new annual lows. Dividing the 156 new highs by 3,394 (total issues) will
yield a result of 4.6%. Dividing 86 (new lows) by 3,394 (total issues) gives us a result of
2.53%. According to the theory because both of the results are greater than 2.2%, the
criterion for the Hindenburg omen has been met and technical traders should be wary of
a potential market crash.
The pattern functions on a combination of technical factors that attempt to measure the
health of the NYSE, and by extension, the stock market as a whole. The goal of the
indicator is to signal increased probability of a stock market crash. The rationale is that
under "normal conditions" a substantial number of stocks may set either new annual
highs or new annual lows, but not both at the same time. As a healthy market
possesses a degree of uniformity, whether up or down, the simultaneous presence of
many new highs and lows may signal trouble. Theoretically, it could be applied to any
stock exchange.
Criteria of The Hindenburg Omen
The daily number of NYSE new 52-week highs and the daily number of new 52-week
lows are both greater than a threshold (2.2% to 2.8%). The NYSE index is greater in
www.profitsrun.com 5
value than it was 50 trading days ago - 50-day Rate of Change (ROC) should be
positive.
Originally, this was expressed as a rising 10-week moving average, but the new rule is
more relevant to the daily data used to look at new highs and lows. As a rule, the
shorter the time-frame in which the conditions listed above occur, and the greater the
number of conditions observed in that time frame, the stronger the effect.
If several—but not all—of the conditions are repeatedly observed within a few weeks,
that is a stronger indicator than all of the conditions observed just once during a 30-day
period.
The Hindenburg Omen is only valid in a rising market -- as measured by the NYSE
composite rolling average over the past 10 weeks; the number of stocks at a 52-week
high must not be more than twice those stocks at a 52-week low, and the Hindenburg
set of apocalyptic conditions must occur twice in a 30-day period.
Market Crashes Correctly Predicted By The Omen
The obvious question is how often has this indicator truly predicted a crash?
The Hindenburg Omen appeared in October of 2007 – right as the S&P 500 was
making all-time highs. The market tumbled quickly -- dropping over 50% from the peak
of October 2007 to the low in March of 2009.
The omen also appeared before the crash of 1987 – so in that regard the omen
correctly predicted two of the biggest crashes in the last 30 years. However, a market
crash only follows 30% of the time when the omen appears so in that regard the omen
is less-than-perfect. The omen has also been plagued by a number of false positives.
www.profitsrun.com 6
False Positives
In August of 2010, the Hindenburg indicator was tripped twice within a 30-day period,
arousing the curiosity of economists, traders, and investors alike. During that time, the
creator of the Hindenburg Omen – Jim Miekka – told the Wall Street Journal that he’d
exited the market in anticipation of a crash. No such crash occurred.
The Man Behind The Omen
In 1986, Jim Miekka was a physics teacher. Miekka and his brother were conducting an
experiment on a chemical product in the hopes of patenting the formula for use in the
mining industry. According to an interview with the Bangor Daily News, Miekka said he
was mixing chemicals at his family’s kitchen table in Sudbury, Massachusetts, when the
mix exploded, damaging his hands and eyes. His curiosity and analytical drive were not
dimmed by his misfortune. Among the many projects he decided to channel his
intellectual restlessness into was one that would enable him to use sound to aim a
firearm equipped with a light-sensitive scope. He eventually became an
accomplishments marksman even after losing his sight. Jim Miekka died in 2014 when
he was struck by an SUV as he walked near his home in Surry, Maine. He was 54.
Conclusion
Every trader longs for some kind of crystal ball. So it’s easy to see why the Hindenburg
Omen had so much appeal. But the reality is that no such advantage exists.
However, this doesn’t mean the omen should be completely ignored. As you’ve seen,
when the omen appears it does make sense to be on high alert.
www.profitsrun.com 7
It also makes sense to educate yourself on how to trade stock options. Traditional buy
& hold investors can do nothing but ride out the crash and hope for a speedy recovery.
But trading options actually gives you the potential to go after profits before, during and
after a crash.
In fact, there’s a way to
potentially turn a modest
account of $5,000 into
nearly $60,000 in about
six months trading
options. This free video
reveals the exact trading
plan that makes these kinds of gains possible.
Thanks for reading.
Good Trading,
Bill Poulos
Profits Run, Inc.