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Tue February 8, 2011
The Super Bowl, the Hindenburg Omen, and the stock market
On this week's Money Matters, financial commentator Greg Heberlein and KPLU's Dave Meyer look at a couple of oddball stock market indicators: the Super Bowl and the Hindenburg Omen. These indicators (especially the Super Bowl) have received a lot of attention over the years, but both Greg and Dave say they should be for novelty use only.
The Super Bowl indicator
Supposedly, if any of the original NFL teams win the Super Bowl, the market will rise by the end of the year. If the AFC team wins (not including three original NFL teams), then expect a down year. Folks were happy this year because the AFC team, Pittsburgh, was an original NFL team. That meant we could expect an up year no matter who won the game.
The system has worked four out of every five Super Bowls, although it has been spottier lately. But there's nothing magical about it. When you rejigger the teams, moving three AFC teams back into the NFC, your odds improve from 16-to-16 to 19-13. That’s 68 percent right there.
How does four-out-of-five up years, with the deck stacked, compare with normal stock-market results? In the 60 years since 1950, stocks have risen in three out of every four years. So being in the market throughout the past 60 years wasn’t a bad idea, regardless of who won the Super Bowl.
The Hindenburg Omen
This indicator isn't as popular as the Super Bowl but is well known in financial circles. It's based on some complicated technical factors, including a negative McClelland Oscillator and a rising New York Stock Exchange 10-day moving average. You can read up on it at Wikipedia.
In the first two weeks of August, 2010, the Hindenburg Omen warned of an imminent stock market crash. Not just a bear market, but a total market crash.
So what happened? The Dow Jones industrial average "plunged" a less-than-noticeable 0.4 percent. That kind of tumble could happen any day of the week or, for that matter, any hour. In the time since the Hindenburg Omen warned us that the roof was collapsing, the stock market has risen about 20 percent. Greg calls it Hindenburg’s folly.
So what indicators should you pay attention to?
If everyone around you is excited about stocks, start looking for the exit. If everyone around you faints at the thought of buying stocks, come back through the door and buy with both hands.
Or, do what has worked for decades. Accept a working model that says the market will, on average, rise in three out of every four years, stay in the game without fretting about the market's direction, and live happily ever after.