What do you get when you put a gigantic balloon filled with a highly flammable gas up into the air? First, you get an amazing spectacle that was getting press around the world for the amazingness of what it could accomplish. Then, you get one of the largest disasters in the history of air travel. I’m talking about the Hindenburg, of course. A huge blimp full of helium that was supposed to be the biggest, brightest and best of what would be a new revolution in air travel that would change the way the world got from one place to another. It didn’t change much- it blew up. No one is really sure why the fire started, but what was supposed to be the future ended up very publicly falling apart and shattering public confidence. Sound familiar?

I’m talking about the stock market, of course. Credit default swaps were a bit of a Hindenburg incident, and there very well could be more.

As Reuters says, “Sometimes technical indicators seem named just to see how much fear they can provoke.” Whether what they refer to is actually an instrument of fear, or something that is well warranted or just something that they gave a good name (for fear) to remains to be seen, but calling something the “Hindenburg Omen” will certainly get peoples’ attention. What we’ve got here is controlled hysteria, and it was triggered on Thursday- just in time for the weekend so people can obsess about it and it can affect the prices of the stocks come Monday morning. Oh, boy.

So what is the Hindenburg Omen? It’s a collection of stock market variables that indicate that there will be a sharp correction in the stock market in the coming months. So, it basically means that because we have been doing so well, probably better than we should have been doing, that we are going to go back the other way and have a sharp correction- meaning, everything is going to go back down in dramatic fashion.

 Jay Shartsis, director of option trading at R.F. Lafferty & Co., calls it a "rare but potent" sell signal. The basic formula is that “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.” If that happens, so the theory goes, then people don’t know which way is up and there is a lack of conviction one way or the other among investors.

All I have to say, right off, is: What a racket. Because there is so much difficulty deciding if things are going well or not, that means things are going to go to hell? Is that what the Hindenburg Omen is supposed to mean?

Shartsis says, pretty much yes. Reuters continues “…when confirmed by a second occurrence within 36 days, ‘every crash (since 1985) was preceded by such a signal." Great.

Other people say they’ve never heard of the signal.

So, once again, whether this is credible is completely based on whether you believe the people who are talking about it. So this really isn’t any different than anything else they talk about on the stock market- except that it has a name you can understand.

Photo Credit: History in an hour