Tags: William | Hindenburg | Cashin | S&P 500

Strategist Ron William: 'Hindenburg Omen' Predicts Stock Market Crash

By Michael Kling   |   Friday, 16 Aug 2013 12:02 PM

The "Hindenburg Omen" has been flashing, predicting that the stock market will soon crash much like the ill-fated German Zeppelin did in 1937.

"The S&P 500 has hit an all-time high not so long ago, yet a lot of the stocks within the S&P 500 are actually making their yearly lows, suggesting some internal weakness in the stock market," Ron William, founder and principal market strategist at RW Market Advisory, told CNBC.

The technical pattern predicted all large stock market drops over the last 30 years, according to William. The S&P 500 has risen over 16 percent so far this year, but the rally is not broad — many stocks of not joined the rally.

Editor’s Note:
Obama Donor Banned This Message (Shocking)

The most common sign of a Hindenburg Omen is when an unusually large number of stocks hit their 52-week highs lows the same day on the New York Stock Exchange. This suggests traders are having difficulty valuing the market.

Other signs include the NYSE Composite Index trading higher than it was 50 days previously, negative market breadth and when the number of stocks hitting new highs trails that of those hitting new lows, according to CNBC.

Investors should consider taking profits while they can, he advised.

"The cyclical recovery is historically overstretched," he explained. "So it doesn't take much for this market to, let's say, tip over."

The Hindenburg Omen has indeed been flashing, according to the Financial Times.

"It's noteworthy," Art Cashin, director of floor operations at UBS, told the Times. "It says the market may have a significant sell-off, not that it must. It bears watching because you had clusters like this before the top of the market in 2007, and you had clusters like this as the dotcom bubble came apart."

However, some experts criticize the technical sign.

"It's just a technical signal that is far better for sound bites and articles than it is for investment purposes," Adam Grimes, chief investment officer at Waverly Advisors, told the Times. "It does come around turning points, but it also just comes at random points in the market — a lot."

Sightings of the omens can vary wildly depending on the methodology used, and "false positives" that do not presage stock market declines are common. Some say using the signal is no better than flipping a coin.

But despite its many false positives, there's never been a significant sell-off since 1980 without a Hindenburg Omen, Cashin told the Times. "That sort of gets your attention."

Editor’s Note: Obama Donor Banned This Message (Shocking)

© 2015 Newsmax Finance. All rights reserved.

1Like our page

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved