The Hindenburg Omen: Bears or Bullshit?

SHOOT: The short answer is that the Omen is a bit of both.  The magic in the formula is that whatever your logic, or your math, you can imagine that if the conditions of the omen are being met, the markets have lost there way.  For example 50% of stocks hitting new highs at the same time as 50% hitting new lows.  In such a scenario the centre is unlikely to hold.  Why the Hindenburg Omen is getting so much press this time round - well I think people know implicitly that the rollercoaster is about to go on that scary downward slide.  I believe most of us share that gut feel, and let's face it, a lot of the life in the market was based on hubris and spin, and belief.  Now it is becoming self-evident that those beliefs are mistaken.  Curiously, it may be a belief in an omen that unravels the beliefs that were propping up the market.  We'll soon see, either way.

More from AOL:

It's also worth pointing out here that while the omen has correctly predicted every big stock market swoon of the past two decades, including the terrible October 2008 decline that set the global economic recession into motion, not every Hindenburg Omen has been followed by a crash. Indeed, to resort to a geometry analogy: All squares are rectangles, but not all rectangles are squares. McHugh acknowledged as much in his 2006 report, writing, "Only one out of roughly 11.5 times will this signal fail."


It's also worth pointing out here that while the omen has correctly predicted every big stock market swoon of the past two decades, including the terrible October 2008 decline that set the global economic recession into motion, not every Hindenburg Omen has been followed by a crash. Indeed, to resort to a geometry analogy: All squares are rectangles, but not all rectangles are squares. McHugh acknowledged as much in his 2006 report, writing, "Only one out of roughly 11.5 times will this signal fail."


Plus, it's not as though the recent Hindenburg sighting is the final word: The tool works only if the five market conditions are observed again within the next 36 days.

Still, the mere prospect of a successful prediction is plenty frightening, given the already fragile state of the world economy. Which is why otherwise more cautious financial blogs such as The Financial Times Alphaville have also quivered at the disconcerting news.

And of course, today Durden couldn't help but note the scarily coincidental date upon which all this Hindenburg discussion was taking place: Friday the 13th.