Hindenburg Omen

Ninety nine red balloons
Floating in the summer sky
Panic bells, it's red alert
There's something here from somewhere else
--Nena

The Hindenburg Omen is a technical market condition created when the number of 52 week highs and lows in individual securities both exceed 2.5% of the total number of issues traded on the NYSE. It is meant to be a bearish signal typically coincident with an uptrend that is ripe for harsh reversal. The "Hindenburg" label reflects the notion that the signal often corresponds with ugly declines.

The intuition is that markets being supported by fewer and fewer 'winners' (new highs) while many securities are being sold (new lows) reflects declining appetite for risk. Markets near their highs with such deteriorating 'internals' are vulnerable to failure as market participants become risk averse.

John Hussman notes that, as a forecasting signal of upcoming declines, Hindenburg Omens are not of much value because many false signals are generated. However, if the Omen criteria are modified to include additional measures of internal health related to leadership, breadth, and participation, and all become uniformly negative, then this filters occurences to just a handful of signals over the past two decades that have corresponded to major tops:

To the extent that the modified measure is meant to reflect significant internal dispersion and shifts toward greater risk aversion, the Hindenburg Omen suggests that we're in the vicinity of major top once again.

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