Before you start wondering I am not referring to the old airship but instead to an economic theory attached to the stock market.
Without getting to deep in the technical weeds the term has to do with a specific set of technical conditions on the market. For those either nerdy or deluded enough to want to know the conditions are as follows
- First the daily number of new 52 week highs and the daily number of new 52 week lows are both greater than or equal to 2.8 percent of the sum of issues that advance or decline that day. In other words you have significant numbers of stocks both gaining and losing value.
- The stock market average is higher than it was 50 days ago (suggesting a possible bubble)
- The McClellan oscillator is also negative (this is another technical indicator which tends to show the market is weaker overall today versus a period in the past
- The number of New 52 week highs cannot be more than twice the number of new 52 week lows (again suggesting a weakening or uncertain market)
Over recent weeks the observers in the market have noticed that this indicator seems to have been present on several occasions (as with most technical economic theories or indicators there remains some debate as to how to measure the 4 criteria so there is debate as to when this indicator appears).
So what does it mean if the Hindenburg indicator is actually there ?
Well in the past it has been a strong predictor of a significant (greater than 5%) drop in the value of the stock market which would translate today into a drop approaching 1,000 points.
I think perhaps of greater concern is the possibility that the fear of this indicator, along with other factors suggesting a weak economy, could push a lot of brokers into selling at the first sign of trouble and that could actually do more damage than the indicator itself.