Add this warning sign to a growing list of worries the market should perhaps take more seriously than it is.
For the first time ever, the tech-heavy Nasdaq Composite has triggered the Hindenburg omen 11 times in a single month (see the chart below). In the past, eight Hindenburg omen triggers preceded major stock market pullbacks, Bluekurtic Market Insights pointed out.
The Hindenburg omen is a market indicator that grabs investors’ attention because it’s designed to spot unhealthy market internals hiding beneath a strong headline index.
In simple terms, the signal flashes when an unusually high number of stocks are simultaneously hitting new 52-week highs and new 52-week lows — a sign that investors may be crowding into a handful of winners while abandoning a growing number of losers.
History shows the omen has produced its share of false alarms alongside its fair share of wins for the bears, so it’s hardly a crystal ball.
“In this bull market, the indicator has been useless,” Bluekurtic Market Insights said.
But other red flags are creeping into the picture.
First, the Philadelphia Semiconductor Index (^SOX) has reached its lowest level in nearly a month. The index is now 16% below its mid-June highs, after just posting its best quarter ever in Q2.
Second, the 30-year Treasury yield (^TYX) closed above 5% for the first time in nearly a month on Tuesday.
And lastly, South Korea’s Kospi index (^KS11), the world’s best-performing market of this year, entered a bear market earlier this week.
“I don’t believe that we’ll see a correction,” StockBrokers.com strategist Jessica Inskip said on Yahoo Finance’s Opening Bid (video above). “I do think, however, we’re going to have a hard time going higher. I see a sideways environment, some periods of consolidation, probably throughout the summer until we completely remove this headline risk or we have another catalyst that sends us higher, which would be astronomical earnings, which is set up.”
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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