One thing Wall Street doesn’t lack is creativity. Represented by the caudrey of catchy phrases like “Sell in May and go away” or one of my personal favorites “bulls make money, bears make money, pigs get slaughtered”. Allow me to expand your knowledge of Wall Street jargon in this missive with “The Hindenburg Omen”….. If it sounds scary its because it is supposed to.
The Hindenburg Omen – named after the 1937 disaster of a German passenger airship – uses a formula that parses data including 52-week stock levels and moving averages. Other criteria include a rising 10-week NYSE moving average and a negative technical indicator that measures market fluctuations. All these indicators must be tripped simultaneously on the same day for the Hindenburg Omen to take place. One occurred on April 15 and another took form last week.
Lets rephrase that last paragraph in language the rest of us can understand.
The Hindenburg Omen is when a bunch stocks do something out of the ordinary all at once.
Why would something of this nature be so revered to earn itself such an ominous title? Well, according to this chart of stock market performance that I was able to poach from The Wall Street Journal, The Hindenburg Omen may be a warning sign that equity investors may want to tread lightly this summer.
For those of you that prefer a summary rather than studying the chart…..It basically states that 83% of the time the equity market is lower 1 month after the omen and 55% of the time it is lower 1 year after.
This may not matter to those with longer time frames but it should help guide anyone sitting on cash or those that were starting to fear the equity market was running without them that patience and putting money to work in stages may be a better plan than an all or nothing move.
Lets also not forget that there are other investments outside of equities that investors can consider as well. Some of which we will cover in future missives. Until then enjoy the start of summer.
The opinions expressed are those of Colby Mcfadden and Quiver Financial as of 6-18-13 and are subject to change due to market and /or other conditions.
This is not a solicitation or recommendation of any investment or security. Consult your own financial representative prior to making any investment decisions.
Colby Mcfadden is a registered rep with Newport Coast Securities and this publication is not to be construed as market research or analysis.
Securities offered through Newport Coast Securities member Finra/SIPC. Advisory services offered through Newport Coast Securities and Registered Investment Advisory