Wednesday, August 18, 2010

Hindenburg Omen - Not!

It would be hard to find someone or group that can beat the quality of data that comes out of Bespoke Group. Today they made an astute observation that trumps the low quality blogosphere hype about the Hindenburg Omen. In typical fashion, Zero Hedge made another biased emotional appeal:
"Today, we just had another (unconfirmed) Hindenburg Omen."

As Bespoke Group points out, the facts of the matter refute the present perceptions.
"Call us crazy, but an indicator that measures the internals of the equity market should probably avoid using fixed income securities in its analysis."

The problem we see all too often in the internet world of truth is few people bother to actually take the time to understand the basis for these long-standing fundamental or technical indicators, nor take the next step to actually vet the information to see if in fact the data is in conformance with the statistical presumptions, requirements, a priori, and other critical factors.

We think one can take solace in knowing the low-quality data monitors who perpetually cry "the sky is falling" can be ignored more often than not. Notice Bespoke confirms the 2008 instance of the Omen, while Zero Hedge gets it wrong when they say the last Omen occurred during 2009. Not only is it statistically wrong, you can see from a chart if it had occurred it would have undermined it's reliability.

Our conclusion is that Bespoke is right and that Zero Hedge isn't filtering out fixed incomes, and therefore wrongly attributes an instance of the Omen to a point at which it never actually occurred. This is a good thing as it suggests the Hindenburg Omen is still a reliable indicator, if one can first learns how to read data and understand the meaning and abstractions of the words that make up the theory.

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