The "Hindenburg Omen," an ominous technical indicator that stokes chatter about a market crash possibly looming in the near future, has been triggered. However, the signal may be wrong this time because it's getting skewed by international stocks, which are more prevalent today, according to a technical analyst at MKM Partners.
MKM's JC O'Hara said the signal was triggered last week at the New York Stock Exchange. For this to happen, four criteria must be met, O'Hara said:
- First, the 10-week moving average of the exchange's composite index must be rising.
- Second, the number of stocks making new 52-week highs and lows must both exceed 2.2 percent of the total issues traded in an exchange.
- Third, the McClellan oscillator — a measure of market breadth based on advancing and declining stocks — must be negative that day.
- Finally, new 52-week highs in an exchange must be less than or equal to twice the new 52-week lows in an exchange.
Source: MKM Partners
These criteria were all met on Sept. 11 at the New York Stock Exchange. But O'Hara notes this may be more of a reflection of weakness overseas than a market crash looming.
"As the NYSE composite is above its rising 50-day moving average, many securities within the index have made new 52-week lows," he said in a note to clients. "Those securities are predominately ADRs, representing international companies. Of the 2,000+ stocks within the NYSE Composite, 360 are foreign listings."