Hindenberg Omen -- Advanced Analysis -- Does the Steepness of the Rally Prior to a Confirmed HO Offer Any Predictive Value"

 stock here: I was reviewing some of my 90 some followers, and there are a number of names, even from a decade or so, that I recall well.   One of these is springheel_jack, IN 2013 HE WROTE ABOUT A CONTRIBUTOR.   I put his table into an Excel Form.

https://albertarocks-ta-discussions.blogspot.com/

https://albertarocks-ta-discussions.blogspot.com/2013/08/regarding-ho-signals-brilliant-analysis.html

I wonder if AI can find the recent Hindenberg indicators?

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The Hindenburg Omen is a technical analysis pattern used by stock market analysts to predict the increased probability of a market crash. It was created by mathematician and market analyst Jim Miekka. This omen is identified by a combination of market factors, primarily involving the New York Stock Exchange (NYSE).

Key Criteria:

New Highs and Lows: The pattern occurs when a significant number of stocks in the NYSE reach new 52-week highs and lows simultaneously, typically greater than a set threshold (such as 2.5% of all stocks on the exchange).
Market Uptrend: The market must be in an uptrend, typically indicated by the 50-day moving average or rate of change being positive.
McClellan Oscillator: A measure of market breadth must turn negative, signaling weakening momentum.

Confirmation: For the omen to be considered valid, there must be multiple occurrences of these conditions within a 30-day period.

Since 2013, there have been multiple occurrences of the Hindenburg Omen. For example, it triggered in May 2013 and was notably confirmed again in December 2021, shortly before the market turbulence of early 2022​ (StockCharts)​ (ChartSchool | ChartSchool)​ (Wikipedia). However, due to the indicator's propensity for false positives (it often doesn't predict a crash immediately), its use is somewhat controversial.

The omen is most relevant during periods of significant market instability, where conflicting signals (new highs and lows simultaneously) suggest market indecision or vulnerability.

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His basis: "I have always been interested that the number of sightings of the HO in a cluster does not seem to be a predictor of the strength or timing of any subsequent downturn. I have therefore been spending some time on the keyboard examining all the data associated with the recorded confirmed HO's going back to 1986." 

His qualifiers: "Rather than use the DJIA that Dr. Robert McHugh used, I have used the S&P as it probably gives a better indication of the wider market. You still get the same approximate proportions of declines that are regularly quoted for the HO. i.e. 25% of the time the market falls by 15% or more, etc."

His general observation: "The interesting thing though, is that while the number of sightings in a cluster is no real guide to the dimension of any decline, the pace of the rising market before a confirmed HO is. Generally, the majority of confirmed HO with subsequent major declines have come after the market has averaged a gain of over 0.08% per day since the low that followed the previous HO. How long ago the last HO occurred does not seem to affect this observation."

The data he uncovered: "The results of the HO which followed daily gains averaging over 0.08% were -31%, -30%,-21%,-18%, -15%, -10%, -5%, -3% and 0%. That's 6 out of the 8 declines of 10% or more. By comparison, in the case of all other confirmed HO where the average daily rise of the market was less than 0.08% the average decline after a HO averaged less than 7%.  And that was only brought up that high by a couple of outrider observations."

Wave Rider's Conclusion: "The interesting thing about the cluster of HO you are currently recording is that the average daily gain since the market low following the last confirmed HO is the second highest on record. That assumes the May/June HO is considered a different one to the August one we are currently monitoring (AR's note: correct assumption). This suggests the present HO could be a portent for a very significant market decline indeed."

An additional point: Hence the rule "The faster they rise the further they might fall". Incidentally, the average daily growth rate before the August 5, 2013 HO was 0.193%. That is by far the highest ever, except the doubtful Dec 1998 HO."

[AR:  Good lord, I hope readers appreciate the implications of that last "additional point".]

--------------------------------------------------------------------- From Seeking Alpha comment
I am very happy for you to use the material in your blog. To help you I have listed the fuller version of the data below. Just a few things to note in case anyone looks to pick holes. The list is from Dr McHugh but I use S&P data not DJIA so some of the days to low, days from low and quantum of decline may vary slightly from his original data. The average daily change % is calculated using calander days (it doesn't really change the results to use trading days ....it is just easier to divide by calender days).

McHugh included one HO in his list that includes only 1 observation. He also notes that the Dec 98 HO was only there by the very smallest of margins. If you discounted both of these the correlation of size of downturn to average daily market rise leading up to the HO is even stronger.

The key cut off on this short list is about 0.08%. A daily rise of more than that before a HO since the last low is almost always followed by a large decline while generally the decline is less if the daily growth rate was less than 0.08%.

Hence the rule "The faster they rise the further they might fall". Incidentally the average daily growth rate before the August 5 2013 HO was 0.193%. That is by far the highest ever except the doubtful Dec 1998 HO.

While a large decline is not assured it does seem more likely in this instance. For the doubters who might jump up and down if the market bounces in a week or two or three, I would point out that the largest declines usually take 80 to 120 days from the HO. The decline is a long drawn out tortuous event not a race to the bottom.

Date Signals % Decline Daily Chng from last low

22-Dec-98 2 0.0% 0.227%
16-Oct-07 9 14.8% 0.152%
20-Jun-01 2 21.0% 0.142%
21-Jul-98 1 17.8% 0.133%
24-Jan-00 6 4.9% 0.123%
14-Sep-87 5 30.7% 0.116%
11-Dec-97 11 2.9% 0.104%
09-Oct-95 6 30.0% 0.089%
11-Oct-89 38 9.5% 0.088%
02-Dec-91 9 1.0% 0.070%
12-Jun-96 3 6.3% 0.070%
27-Jun-90 17 16.8% 0.068%
13-Apr-04 5 4.0% 0.066%
13-Jun-07 8 7.2% 0.065%
15-Sep-00 9 9.3% 0.065%
26-Jul-00 3 8.4% 0.059%
07-Apr-06 9 5.5% 0.057%
31-May-13 4 3.5% 0.055%
15-Jun-99 2 4.1% 0.046%
19-Sep-94 7 4.4% 0.043%
25-Jan-94 14 6.8% 0.035%
03-Nov-93 3 1.2% 0.033%
21-Sep-05 5 2.8% 0.024%
20-Jun-02 5 20.7% 0.015%
02-Aug-10 5 7.0% -0.015%
12-Mar-01 4 6.5% -0.075%

As regards your friend Hinch, what a coincidence. I live in Hobart and my first apartment here was next door to one in a tower block owned by a Hobart geologist who now works in the oil industry in Canada. Hinch doesn't happen to own the unit next to my former home does he?