Have read about the Hindenburg Omen on NanYang Siang Pau yesterday and this is a close look up on the "sign". This is an article taken from the http://www.marketwatch.com/.
- Both the daily number of 52-week highs and 52-week lows on the New York Stock Exchange are equal or greater than 2.2% of NYSE stocks that day.
- The 10-week (or 50-day) moving average is rising.
- The McClellan Oscillator, a measure of market breadth based on exponential moving averages of advancing and declining stocks, must be negative, or bearish.
- New 52-week highs are not more than twice the number of 52-week lows.
According to Wikipedia,
From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77% [The Wall Street Journal 8/23/2010 article cited below states that accuracy is 25%, looking at period from 1985], and usually takes place within the next forty days. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines.
Because of the specific and seemingly random nature of the Hindenburg Omen criteria, the phenomenon may be simply a case of overfitting. That is, by backtesting through a large data set with many different variables, correlations can be found that do not really have predictive significance. The Omen is at best an imperfect technical indicator that is a work in progress.
p/s: It's still not too late to sell now...