Hindenburg Omen Reached Again: Is a Stock Market Crash Imminent?

(Hindenburg Omen stock market crash story updated for end of recession call by NBER, September market rally)

NEW YORK ( TheStreet) -- Remember when the Hindenburg Omen seemed an almost-certain predictor of an impending stock market crash? It may seems like eons ago, or at least one ended-recession ago, but in fact, it was just August 13 -- notably, a Friday the 13th -- when the obscure technical indicator became more important than Federal Reserve commentary, GDP and housing data, and just about any of the regular trader means of prognosticating the future direction of the markets.

The Hindenburg Omen reared its ugly head of technical stock market crash signals three times between August 13 and the beginning of September.

At the time of the first Hindenburg Omen trigger, the blog Zero Hedge described the Hindenburg Omen as "Easily the most feared technical pattern in all of chartism (for the bullishly inclined). Those who know what it is, tend to have an atavistic reaction to its mere mention."

Writing on RealMoney.com some weeks later, when the third Hindenburg Omen trigger was signaled, Rev Shark noted that there continued to be some statistical support for the indicator. "One month later, we have had a mean loss of 1.7% and have been positive just 41% of the time. So it isn't just a sensationalistic name. There has tended to be a pattern of weakness when the Omen is triggered," he said.

Ah, it all seems like such a quaint technical trading cottage industry now. Seemingly the only thing that crashed and burned in September, in fact, was the Hindenburg Omen itself. The September market rally culminated in Monday's recession death certificate being signed by the influential group of economists known as the National Bureau of Economic Research. It may have been the longest recession since World War II, at 18 months, but the markets gave little sign that they were about to crash and burn again since the technical market data equivalent of Chicken Little made its dire call.

In case you missed the play-by-play -- and let's hope you did, so you didn't cash out of all your investments and miss the September gains -- a mid-August trading session on the New York Stock Exchange registered a technical anomaly known as the Hindenburg Omen. Read: just like the doomed German airship, the markets were fated to crash and burn. It takes two Hindenburg Omen events within a 30-day window to trigger the end of life in the markets as we know it, and there were three Hindenburg Omen events, yet no end to life, or the markets.

The Hindenburg Omen's 15 minutes of market fame became such a viral media epidemic that even Fox News personality Glenn Beck mentioned the technical indicator on his show -- not nominating it for a seat on a Tea Party ticket -- but somehow, finding a way to link the Hindenburg Omen to President Obama's obviously flawed economic policies.

Vote Now on the Hindenburg Omen Recession Threat

Is the Recession a Dead Issue?

Writing on RealMoney.com after the first Omen was triggered, Rev Shark noted the market voodoo being applied to the situation. "The logic behind this ominous-sounding indicator is this: When there are internal inconsistencies in the market that are causing a simultaneously high level of new highs and new lows, a greater risk exists that the resulting confusion and uncertainty will cause market players to exit... When the herd is confused and moving in two different directions, internally that is going to cause some problems."

In technical terms, the Hindenburg Omen is only valid in a rising market -- as measured by the NYSE composite rolling average over the past 10 weeks; the number of stocks at a 52-week high must not be more than twice those stocks at a 52-week low, and the Hindenburg set of apocalyptic conditions must occur twice in a 30-day period.

The Hindenburg Omen occurs when an unusually high number of companies in the New York Stock Exchange reach 52-week highs and lows at the same time. The proportion of NYSE stock highs and lows must both exceed 2.5% of the total listed on the exchange. While the Wikipedia entry on the Hindenburg Omen claims that the trigger is 2.2% of the NYSE total and others claim that 2.8% is the appropriate trigger, Miekka said that percentage was adjusted years ago to 2.5% to take into account the market move to decimalization. The Hindenburg Omen last occurred in October 2008, according to UBS data.

And that's not all. The Hindenburg Omen perfect storm must also include a negative measure in the NYSE McClellan Oscillator, a measure of market momentum. If it sounds like the flux capacitor of Back to the Future, you just don't know how to trade the charts.

The Hindenberg Omen does have a decent track record. A UBS strategist told Bloomberg that the Hindenburg Omen signaled itself seven times in 2008, before the S&P posted its biggest annual drop since the Great Depression. A confirmed Hindenburg Omen has occurred prior to every major stock market crash since 1985, according to various market sources with their finger on the panic button.

Ultimately, the Hindenburg Omen was supposed to be about market uncertainty rising above an acceptable level for stability, a technical indicator for mere investor anarchy being loosed upon the markets. It did seem before the September market rally that economic conditions were about as close to anarchy as it gets, with the U.S. unemployment picture still a mess and the European debt crisis still a foremost concern.

However, a funny thing happened on the way to the imminent Hindenburg Omen stock market crash.

Vote Now on the Hindenburg Omen Recession Threat

Is the Recession a Dead Issue?

Could the Hindenburg Omen simply have been an upside-down market signal? Instead of being a signal to sell, will it end up being relegated to the dustbin of trading history as another classic case of Warren Buffett's maxim to buy when you smell the most fear in the markets?

In the midst of the September rally and the NBER pronouncement of the Great Recession's end it may seem that investors who cashed out of investments were duped by the Hindenburg Omen. Yet with President Obama conceding at a Town Hall meeting on Monday that the recession hasn't ended for many Americans -- even if NBER says it ended in June 2009 as a technical economic measurement -- have things changed all that much for the investor or average American?

The Federal Reserve Open Committee meeting message on Tuesday was no ringing endorsement for the economy, keeping rates the same and with the Fed saying it may still step in to bolster the economy. The markets couldn't hold their gains on Tuesday after the Fed commentary.

More than half of U.S. states (27 states) had unemployment rates that rose in August, the largest number in six months, the Labor Department said Tuesday, worse than the previous month and the highest number of states seeing the jobless rate increase since February.

It's still the mid-point of the presidential election cycle, too, historically a bad time for the markets, and the Hindenburg Omen did sound its warnings ahead of the month of October -- i.e. stock market crash central.

It may not be mere anarchy loosed upon the markets, but the bull is far from charging ahead. Indeed, the recent signals have overshadowed the Hindenburg Omen, and raised the question, Are you, Mr. Investor, any more confident about the immediate market outlook or still expecting the Hindenburg Omen to crash and burn the economy -- even, if now, thanks to NBER, it would have to be classified as a new recession?