The Hindenburg Omen has always enjoyed more fame than it deserves. Dramatic name, dramatic narrative, dramatic history reference. Perfect for CNBC chyrons and breathless newsletters. The trouble is that once you strip away the branding, you’re left with an over-active, under-informed market breadth alert that mistakes normal internal turbulence for impending catastrophe (An aside: the Hindenburg was only the 5^th worst airship disaster in history. It is the most famous due to the eyewitness accounts and newsreel coverage).

To its credit, the Hindenburg Omen is not totally irrational. It looks for a market with discordant signals:

• lots of new highs and lots of new lows.
• a negative McClellan Oscillator (the McClellan Oscillator is a measure of the momentum of the difference between advancing and declining issues).
• a rising market.

In theory, this describes an unhealthy market—leadership thinning out, internal disagreement building, stress rising and yet the market continuing to advance.

In practice? It just isn’t particularly prescient. The problem is that once you actually test it, the Omen turns out to be more excited than insightful. It fires quite often. Most of those occasions lead to nothing. The best that can be said is that it acknowledges the obvious: when market internals stop agreeing with each other, the system becomes fragile (or really we define “fragile” to mean the times when the Hindenburg Omen is in effect).

If you look at S&P 500 returns following Hindenburg Omen signals over the last 40 years, you get something like:

• Average forward 1-month return: roughly 0%
• Median: slightly positive
• Max drawdowns after signals: nothing special—plenty of periods with larger declines without an Omen
• Percentage of signals followed by a decline of at least 5% within 30 days: about 25–30%
• Percentage followed by a decline of more than 10% within 30 days: <10%

In other words, it’s not much better than flipping a coin, except the coin is biased toward false alarms.

The Omen’s press comes from a few cherry-picked wins:

“Look! It fired before 1987!”

Sure—but it also fired dozens of other times when nothing happened. Identifying a crash in hindsight is easy when you allow yourself unlimited attempts.

The real, yet boring, story is that markets regularly show contradictory internal behavior, and the vast majority of those episodes are meaningless.

If we’re generous, the Hindenburg Omen is simply capturing the obvious: a market with broad internal disagreement is one where fragility is increasing. Fine. True (by definition). Trivial (by construction).

This fragility isn’t the same as a crash warning. These “fragile” markets can drift upward for months.

Breadth divergence can foreshadow turbulence; it does not forecast disaster. Any indicator that claims otherwise—and wraps itself in a melodramatic historical name—is selling mood, not insight.

The Bigger Lesson

Crash predictors are popular because they offer emotional certainty in an uncertain world. The Hindenburg Omen is no different. But if you actually want to model downside risk, you are better off looking at structural edges—flows, positioning, volatility regimes—than a breadth cocktail assembled in the 1990s and retroactively blessed for having been “near” some big events.

The Omen’s flaw isn’t that it’s nonsense. It’s that it promises far more than it can deliver. It’s a microphone tuned to static.

Disclaimer

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact HTAA or consult with the professional advisor of their choosing.

Except where otherwise indicated, the information contained in this article is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution of any future date. Recipients should not rely on this material in making any future investment decision.

The S&P 500® Index is designed to measure the performance of the large-cap segment of the US equity market. It is float-adjusted market capitalization weighted. Any reference to or definition of the S&P 500 within this material is provided solely for informational and illustrative purposes.