If you are an avid reader of financial blogs, surely you have come across the Hidenburg Omen splattered amongst many web pages these past few weeks.  I have not touched on it because frankly I never heard of it until 3 weeks ago (same for 99% of those in the market), and it (to me at least) is sort of data set dressing to create a conclusion.  I could find every major crash and then find 5-8 things that were consistent before all of them (but also before many benign periods) and then put a cool name to it, and wave it around and scare people, but what's the point?.  Before every crash there is at least 1 U.S. Congressman with first name John.  Further, there is always a named hurricane in the previous August, and snow has fallen in Wisconsin by Nov 13th of that year.  Always! Then we crash!*

*Granted when those conditions hold we don't crash 80% of the time.

To that end I agree with Ritholtz's comments.  Further it has many false positives - i.e. 75% of the time.  That said, if we crash soon this gentleman in the WSJ story below will be a Roubini like force of nature and a new financial celebrity.  (or for you old timers, the anti Abby Joseph Cohen)  Ironically, with the S&P 500 not far from the line in the sand at S&P 1010... if that level breaks, Mr. Miekka may get his date with destiny.

I found the story interesting simply because it talks more about the guy who found the patterns, and his background...

  •  Jim Miekka has never worked on Wall Street and doesn't hold any financial degrees. But he has suddenly developed a cult-like following among some investors.  The 50-year-old newsletter writer is in big demand these days because of a technical market indicator he devised to predict stock-market crashes. Dubbed the Hindenburg Omen after the 1937 disaster of a German passenger airship, the indicator has been the buzz of talk shows, blogs and news articles after developing a following on trading floors from New York to London.
  • The Dow Jones Industrial Average has dropped 2.5% since the indicator was triggered the first of three times on Aug. 12. The market action has turned Mr. Miekka, a blind former high-school physics teacher, into a reluctant celebrity.
  • I guess it feels good to be famous, Mr. Miekka says from his home in Surry, Maine. But at the same time I wonder how the indicator is going to work in the future with all this attention.
  • Mr. Miekka devised the indicator using a formula that parses data including 52-week stock levels and moving averages of the New York Stock Exchange. Other criteria include a rising 10-week NYSE moving average and a negative technical indicator that measures market fluctuations. All these gauges must occur simultaneously on the same day to trigger the Hindenburg Omen. 
  • To some, it sounds like little more than hocus-pocus. Wall Street traders are skeptical, considering that the indicator has been triggered many times since Mr. Miekka devised it in 1995 without an ensuing major market selloff. Indeed, significant stock-market declines have followed the indicator just 25% of the time.
  • Barry Ritholtz, chief executive of Fusion IQ, an online quantitative-research firm, says the Hindenburg Omen is a backward-looking indicator that doesn't consider causation. He labels it recession porn, contending that investors are attracted to negative commentary and conspiracy theories during skittish markets.
  • Mr. Miekka brushes off such concerns. He warns that the trio of Hindenburg Omen appearances this month doesn't bode well, especially since a cluster of occurrences tends to lead to more significant declines. He said it is possible the market could drop 20% from the first sighting two weeks ago.  It's like a funnel cloud, Mr. Miekka says. You don't get a storm with every funnel cloud, but now that we're seeing several funnel clouds, I definitely think I want to stay in the storm cellar. 
  • Despite the publicity surrounding the Hindenburg Omen, his obscure investment newsletter, which has just 100 subscribers, hasn't fared quite as well.  He says: I've gotten maybe five or seven inquiries and one subscriber.