The Hindenburg Omen – A Potential Fat Tail Event on the Horizon?
by David Urban
Tue, 17 Aug 2010
The Fat Tail is beginning to wag the Market
The S&P 500 had been flashing a number of bullish and bearish technical signals to the market. Amongst the various signal we had an inverse head and shoulders and an ascending wedge. Last Wednesday provided a resolution with the ascending wedge breaking down and the market moving significantly lower. More troublesome was the market’s action the next three trading days. After large moves in one direction the market typically consolidates in the opposite direction as short term traders look to book profits and others buy on dips/sell into strength. What we had was the opposite, a market that could not move higher and instead drifted lower.
On Thursday, a Hindenburg Omen signal was triggered. A Hindenburg Omen is a statistical sign made up of market indicators which foreshadows a move to the downside. Just one Hindenburg Omen is not enough as there needs to be confirmation of the first signal within 36 days. If this signal is not confirmed then the signal is not valid.