The Hindenburg Omen: A One Way Ticket for the FTSE?

by top technical analyst Zak Mir of Zaks-TA.com

According to some, the Hindenburg Omen, which has made an unwelcome appearance recently, is one of the most feared and ominous signals in the world of charting. Apparently, this pattern, named after the German airship destroyed by fire in 1937, is behind every NYSE crash since 1985. But does it herald an imminent crash for the FTSE?

Having appeared regularly on Bloomberg TV and CNBC, Zak Mir, is well-known and respected in the field of technical analysis, with an expert knowledge of a range of techniques and patterns. In this special report, the Zaks-TA.com editor explains this feared charting phenomenon and buzz word of the moment before analysing the current situation for the FTSE.

On Zaks-TA.com, Zak provides dozens of updates each week on the FTSE plus other markets and individual stocks of interest, including a Trader's Outlook, Major Markets Review, portfolio update and Chartbreakers feature every day. To get all Zak's charts and analysis, click here.

A One Way Ticket?

Those who have been in the market since the 1970s, or who are just old, will remember that it was the decade of the disaster movie, with The Towering Inferno, The Poseidon Adventure, and even the flop Raise The Titanic as standouts.

Now to start the 2010s, things seem to have come full circle with the financial markets enjoying “Death Cross” at the beginning of July, and now this month “The Hindenburg Omen”. In fact, Death Cross – a cross between the 50 / 200 day moving averages on the S&P and other leading indices - turned out to be a buy signal, with last month delivering a bear burning 10% rally.

This month we have Hindenburg, which, put simply, is negative market breadth in terms of the 52 week new highs and lows on the S&P.

If you are of a cynical nature, as is fitting most of the time for successful trading/investing, you might get the impression that someone is trying to frighten buyers out of being long. On Zaks-TA.com, we currently have the view that equities are at present in no worse than neutral mode technically, so to be looking for disaster could be a mistake.

Of course, things can change, so I keep a close eye on market movements and publish several reports each day on Zaks-TA.com. If you want to get all my analysis and charts, and see how the Hindenburg Omen develops, click here to join Zaks-TA.com now.

The FTSE 100 vs Hindenburg

The key to the discipline of charting is to be as objective as possible and let the patterns and technicals do the talking. In the case of the recent price action of the FTSE 100, post-May, we see a general rolling top pattern at just above the 5,400 level.

There are narrowly higher highs as we have moved into the middle of summer, something which normally suggests a market attempting to stop loss out shorts – prior to a move down. Yes, that is how cruel markets are.

The other bear sign is the way that, as well as the 5,400 barrier, we also have the key technical trend indicator – the black 200 day moving average currently lying at 5,340. This has capped the price of the FTSE 100 since May. Once again temporary spikes through the 200 day line are seen as bearish – with the normal rule being that under the 200 day moving average a stock or market is a sell and above it in a buy trend.

Therefore, when looked at using conventional methods, the FTSE 100, at just over 5,300, is at best no better or worse than neutral. The percentage trade at this point would be to sell into strength towards the 200 day moving average, with a stop loss clear above 5,400. The target is also no lower than the floor of a red May price channel at 5,150.

To keep up-to-date with all the latest trends in the FTSE, and get dozens of updates each week from Zak, join Zaks-TA.com now by clicking here.