The U.S. stock market sent an ominous signal this week that could indicate more pain ahead for investors despite Friday’s strong stock-market rebound.
Stocks trading on the New York Stock Exchange issued the third “Hindenburg Omen” over the past six days on Thursday, according to Tom McClellan, editor of the McClellan Market Report.
This follows a cluster of similar signals seen in early November, shortly after the Nasdaq Composite COMP touched its most recent record closing high.
“A single signal is interesting, but the message gets more compelling when we see clusters of multiple signals in a short time frame,” McClellan said in research shared with MarketWatch.
Over the past six months, the U.S. stock market has now seen eight Hindenburg signals, McClellan said. Clusters of signals have preceded major market tops in the past. For example, the Hindenburg Omen was spotted just before the stock-market top in early 2022 that preceded a painful bear market. That being said, signals have previously emerged only for nothing bad to follow.
“Hindenburg Omen signal, or a bunch of them, is a warning but not a guarantee of trouble. It says, ‘Pay extra attention,’” McClellan said.
What is the ‘Hindenburg Omen’
The omen was created by an analyst named Jim Miekka back in the 1990s. Despite never having worked on Wall Street and not holding any financial degrees, Miekka’s work helped him develop a cult following, according to a report in the Wall Street Journal published back in 2010.
The indicator is named after the German passenger airship that was involved in a historic disaster in 1937.
Miekka devised the indicator using a formula that analyzes data, including the number of New York Stock Exchange-listed shares making new 52-week highs and new 52-week lows. Other criteria include a rising 10-week NYSE moving average and a negative reading from the McClellan oscillator, a technical indicator that aims to quantify stock-market fluctuations.
U.S. stocks were seeing a strong bounce on Friday at the end of what had been another rough week for the Nasdaq. The tech-heavy index was up 435 points, or 1.9%, at 22,975 in recent trade. The S&P 500 SPX was up 118 points, or 1.8%, at 6,917, while the Dow Jones Industrial Average DJIA was up 1,081 points, or 2.2%, at 49,990.
Written by: Joseph Adinolfi @MarketWatch
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