Hindenburg omen in stock market suggests upcoming slump

Hindenburg omen and other technical indicators seem named just to see how much fear they can provoke.

Take the "Hindenburg Omen," an indicator that depends on a number of variables that was triggered on Thursday in the stock market, portending a sharp correction in coming months.

Named after the zeppelin disaster that took place over Lakehurst, New Jersey, in 1937, the pattern is a "rare but potent" sell signal, said Jay Shartsis, director of option trading at R.F. Lafferty & Co.

For this to be activated, it requires at least 2.2 percent of the market to reach new 52-week highs and 52-week lows on the New York Stock Exchange on the same day, which happened yesterday, suggesting a lack of conviction among investors.

However, it also needs to happen in a rising market, based on certain indicators, including a 10-week moving average of the NYSE Composite, which has to be rising.

Shartsis said the indicator "speaks for itself," noting that when confirmed by a second occurrence within 36 days, "every crash (since 1985) was preceded by such a signal."

Other strategists said they hadn't heard of the indicator, which has been discussed on financial blogs during Friday's trading.