The stock market is down more than 6% since the start of August, and lately you may have heard chatter about an ominous sounding phenomenon called the Hindenburg Omen.  For those who are not familiar with it, here is some background, from the wikipedia page:

The goal of the [Hindenburg Omen] is to signal increased probability of a stock market crash...The rationale is that under "normal conditions" either a substantial number of stocks may set new annual highs or annual lows, but not both at the same time. As a healthy market possesses a degree of uniformity, whether up or down, the simultaneous presence of many new highs and lows may signal trouble.

Here's the best part:

From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and usually takes place within the next forty days. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. 

(Source: http://en.wikipedia.org/wiki/Hindenburg_Omen)

That's the background, now the foreground is we've had two of these indicators within a month, Aug. 12 and 20.  Among believers, two of these triggers make a market crash within a month almost certain.  

And I think clearly, people in the stock markets are superstitious.  But let's talk fundamental macro-economic stuff now.

You all know the bad news in housing, and the perception is that it was only government stimulus that was propping the housing market up late last year and early this year.

This is clearly important because lest we forget, housing led us into the recession and so the thought was that housing would lead us out of it.  I thought that myself.  And I thought this summer would be the turning point, but it hasn't.

Anecdotally, I know several people who are having housing problems, one is walking away from a house he moved out of and can't sell, another would like to sell a house that is currently a rental property but can't, and another will look to rent in a few months as she wants to move.  And a house on my block that is for sale seems to never have any visitors, let alone offers.

The job market being muddy, no one wants to buy a house.  And basically people have lost all faith in political leaders to pull us out of this crisis.  I will spare you my political complaints: a lack of meaningful dialogue, an obstructionist Republican party and a pretty inept Democratic party.  Brain-dead voters who would rather talk about a mosque in New York than real issues...

In terms of stocks, the appetite for risk seems dried up, at least among normal people.  We've been burned too many times.  Consider this NYT article:

http://www.nytimes.com/2010/08/22/business/22invest.html?_r=1&src=me&ref=homepage

 “At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.”

Anecdotally I am hard pressed to find any of my friends who want to talk about stocks (save for my friends here on ProofTrader).  It's become a day trader's game, and the trend is that regular people are withdrawing their money in droves. 

And to a large extent people's beliefs about the future shape the future itself.  I wonder if this will be the case with the Hindenburg Omen, in essence that it will be a self-fulfilling prophecy.

Or more big picture, if everyone believes a 'double dip recession' is coming, maybe it will.  So to be perfectly clear, I don't put any more faith in the Hindenburg Omen than anyone else, but I think if other people do, their own beliefs could trigger the decline the Omen predicts.