U.S. stocks' "Hindenburg ominous sign" warning confirmed! Tech stocks account for 56%, countdown to collapse begins

Wall Street stock market at the end of October exhibited an uncommon technical warning signal called the “Hindenburg Omen.” Based on historical experience, this signal often appears before a U.S. stock market crash. The S&P 500 Index and the NYSE Composite Index simultaneously triggered this omen, indicating that market breadth has significantly narrowed and internal structural imbalance has further worsened. Technology stocks now account for approximately 56% of the total market capitalization, reaching a record high.

What is the Hindenburg Omen? Four Conditions Triggered Simultaneously

(Source: Trading View)

The “Hindenburg Omen” is a technical analysis indicator created by the late American mathematician Jim Miekka. The name is derived from the 1937 German Hindenburg airship explosion, used metaphorically to predict potential major declines or risks of a stock market crash. To trigger this omen, four specific conditions must be met simultaneously.

The first condition is that the stock market is in an upward trend, specifically that the NYSE Composite Index is above its 10-week or 50-day moving average. This ensures the warning only activates in a bull market environment, as the destructive power of a crash is greatest when the market is at high levels. The second condition requires that the number of stocks reaching 52-week highs and lows each be at least 2.2% of the total number of stocks. This captures extreme internal divergence within the market.

The third condition is that the lesser of the number of stocks hitting new 52-week highs or lows exceeds 2.8% of the total NYSE issues. This ensures both new highs and lows reach significant levels, rather than one side dominating excessively. The fourth condition is that the McClellan Oscillator turns negative. This indicator measures short-term market breadth momentum; a negative value indicates that declining stocks outnumber advancing stocks, signaling internal market weakening.

Four Conditions for Triggering the Hindenburg Omen

Uptrend Confirmation: NYSE Composite Index above 10-week or 50-day moving average

Highs and Lows Both Elevated: Stocks hitting 52-week highs and lows each exceeding 2.2% of total

Extreme Divergence: The lesser of the highs or lows exceeds 2.8% of total issues

Market Breadth Turns Negative: McClellan Oscillator turns negative

When the market meets all four conditions, a warning signal is triggered. If the same signal recurs within the following 36 days, the “Hindenburg Omen” is officially confirmed. Over the past 20 years, the appearance of this omen, once confirmed, “has the potential” to precede a significant short-term decline.

The underlying meaning of these conditions is straightforward. The Hindenburg Omen mainly aims to detect discordant behavior when the market is at a historical high. For example, a high number of stocks reaching new highs and lows simultaneously, combined with the index in an uptrend and the McClellan Oscillator below zero, resembles a “bearish divergence” between the index and market breadth—indicating a more severe warning.

Market Structural Imbalance with Technology Stocks at 56%

It is worth noting that recent market rallies have been driven mainly by technology and AI-related sectors, especially the “FAANG” giants, which have led the market to new highs repeatedly. As a result, technology stocks now make up about 56% of the total U.S. stock market capitalization, with the top ten tech companies’ combined market value reaching $25.6 trillion, accounting for over 42% of the S&P 500.

This concentration is extremely rare in U.S. market history. Even during the tech bubble peak, tech stocks’ share did not reach such an extreme level. When a few giants dominate the entire market, systemic risk increases significantly. If these leading stocks encounter problems, the entire market could lack support from other sectors.

However, other sectors are currently performing poorly or even weakening, leading to a severe market imbalance. The appearance of the Hindenburg Omen reflects this internal discord—while the index appears strong, it is mainly supported by a handful of mega-tech stocks, and the overall market health has declined markedly. Such imbalance is unsustainable in the long term; once tech stocks weaken, a chain reaction across the market could ensue.

Historically, the Hindenburg Omen does not always precede a market crash; sometimes it signals a typical correction. Nonetheless, it is important to note that before major crashes like in 1987 and 2008, the omen was confirmed, serving as an accurate warning.

Moreover, even if the omen is only a warning (not confirmed), it does not mean the market is safe. For example, after the NYSE index issued warnings in late November 2021 and late January 2020, the market experienced declines of over 20% and nearly 40%, respectively, shortly afterward. This suggests that even unconfirmed signals can reflect underlying structural risks.

Timing of Crashes and S&P Historical Backtesting

While the Hindenburg Omen has accurately predicted several major declines, there is no fixed timing for a crash after the signal appears. Statistics show that markets tend to decline approximately 3 weeks to two months (around 40 days) after the signal, though delays are common. Sometimes, multiple ominous signals appear in quick succession, yet the market continues to reach new highs for months before a downturn begins.

For example, in August and September 2007, the NYSE issued multiple Hindenburg Omen signals, but the market hit new highs in October of that year, with a significant downturn only starting in the second half of 2008. This indicates that while the warning is valuable, it should not be interpreted as an immediate reversal indicator. Analysis of the S&P 500’s performance within 5 to 250 trading days after the omen shows that in the short term (around 5 and 10 days), market movements are relatively stable, with over half (57% and 63%) showing no major decline, reflecting that the signal does not trigger an immediate crash.

However, at 20, 50, and 100 trading days after the signal, the S&P 500 often experiences notable corrections, with declines exceeding 70%, aligning with the typical 3-week to 2-month warning window. The distribution of signals also shows high correlation with the timing of the NYSE Composite Index signals.

Many analysts believe that when multiple major indices simultaneously meet the Hindenburg Omen criteria, it indicates widespread structural imbalance, increasing the likelihood of a significant correction or crash. Currently, with both the S&P 500 and Dow Jones Industrial Average showing Hindenburg signals, market breadth has clearly narrowed, and internal imbalance has worsened. Therefore, the risk of a deep correction in the near future cannot be ignored.

In summary, recent signals from both the NYSE and S&P 500 suggest a notable internal discord in the market. The current bull market may be entering its late stage; while still with some momentum, upside potential is limited. Given the existing imbalance and overheating, investors should exercise caution and avoid excessive chasing of gains.