Hindenburg Stock Market Crash Omen is Nonsense Says BubbleOmics
Stock-Markets / Financial Crash Aug 23, 2010 - 03:45 PMBy: Andrew_Butter
Apparently there has been another Hindenburg Omen sighted, and apparently also one of those has preceded every US stock market crash since 1985.
Robert McHugh has a table that proves that: http://www.marketoracle.co.uk/Article22097.html
I’m a bit confused by the last entry which says that the first new set of Omens started in December 2008 and there wasn’t a crash since then. Well actually the DJIA went down 22% from then, but perhaps that was just a “correction”.
This is a chart comparing the numbers of Omens sighted with the final decline, using the data provided by McHugh (and the alternate).:
There is no correlation at all, although the shape of the “best-fit” appears to suggest that if no Hindenburg Omens are sighted the likely size of the crash that follows will tend towards infinity.
Plotting that data another way:
OK 44% R-Squared is not nothing; but it’s not a lot.
But if you buy the idea that the decline of 22% from December 2008 to March 2009 was a separate “crash”, then since then one Omen has been sighted, just recently (apparently none were sighted before the recent 16% decline), so “well we just had a “sighting” so it’s pretty unlikely there will be a crash of more than 20% for at least two months, if that is a valid predictor.
Another explanation is that the Omen is just a load of Mumbo-Jumbo.
Markets crash precipitously when they are in a bubble, that’s when the price is above the fundamental value (International Valuation Standards Calls that Other Than Market Value).
Here’s another way of looking at that:
The explanation for why that works is at:
http://www.marketoracle.co.uk/Article10604.html
http://www.marketoracle.co.uk/Article9131.html
http://www.marketoracle.co.uk/Article12114.html
That logic (called Bubbleomics) predicted (like in advance):
1: S&P 500 would bottom at 675
2: Then it would bounce
3: All the way until it reached 1200
4: Then it would go down 15% to 20%.
Oh and by the way, there were only FOUR predictions; i.e. four out of four.
The same logic says about the impending “mother of all crashes” to dwarf all crashes:
“Don’t be so silly”!
By Andrew Butter
Twenty years doing market analysis and valuations for investors in the Middle East, USA, and Europe; currently writing a book about BubbleOmics. Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.
© 2010 Copyright Andrew Butter- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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