Are women’s fashions telling us anything about stocks?

I am sure we have all heard of the Hemline Indicator (otherwise known as the Skirt Length Index).  But with this week’s fashion bombshell news, it appears we may have a new take on it as it reflects on the state of the economy and the fate of the stock market.

It is not often that I follow women’s fashions, but this week an article in the Telegraph appeared that made me sit up bolt upright.

To refresh your memory, the Hemline Indicator theory states that when the economy is in the dumps accompanied by low stocks, hemlines are low.  The idea is that with social mood bearish, women tend to cover themselves up and become restrained in their wardrobe.

Conversely, when the economy is on the up with stocks rising, social mood is positive and women become more flamboyant in their dress and tend to more revealing clothes.

This theory was first observed many decades ago and may have been one of the first observations that variations in social mood somehow reflect the state of the stock market as observed through fashion (which, like the share market, responds very quickly to these mood changes).

In addition, women in particular, tend to herd together much more than men (except for football supporters) and will often follow the current fashion trends.  And it is the very same herding phenomenon that drives the price of stocks (and all other financial assets).

So perhaps that is why the Hemline Indicator seems to work quite well

But last week’s bombshell news item was a blast from that Hemline past.  It appears the actress and style icon Sienna Miller is starting an entirely new fashion trend – towards much lower skirts and much covering up.  The headline of the article is quite clear: “Sienna Miller is right – ‘do-not-fancy-me’ clothes are the defining look of the decade”.

That is a very strong statement from a well-known fashion writer and will almost certainly will prove correct as stocks enter their upcoming collapse phase.

In fact, her skirt is so low, it cannot possibly go any lower (unless wedding dress-like  trains become mainstream, which is unlikely in my view).  But what caught my eye is the completely un-flattering look she is adopting.  We of the male persuasion have always believed that women tend to dress to attract the eye of the male (or to out-do their female rivals).  That has been the unwritten rule for many years.

But now, the stated intention is to deter men in a complete reversal of attitudes.  Sienna says: “The more unattractive I can make myself, the less flesh I can possibly show, the better.  I used to be quite flirty and sexy, and now it’s just like, ‘do-not-fancy-me’ clothes.” [sic].

In a nutshell, could this indicate the start of a sea change in social attitudes – and a corresponding about-face in social mood?

Judging by her photo, Sienna is  succeeding in her intention most spectacularly.

I must also mention the Nail Colour Indicator.  Nail salons are doing a roaring trade as women choose to colour their nails and it has been observed that the darker the trend, the darker the mood and the darker the economy (and vice versa).  I am not entirely au fait with the latest nail trends, but it would be an interesting study.

And I am wondering if all of this is somehow linked to the utter confusion today in sexual and gender roles – a subject I covered recently. And with Trump’s volte face in many of his electioneering policies now he is President, confusion reigns at the very top of society as well.

This is the Age of Confusion!  We have had the Age of Anxiety (which still lives in some quarters).

Just today, the UK’s Association of Teachers and Lecturers conference reports the changing attitudes has resulted in a ‘huge’ number of transgender and ‘non-binary’ students.  It has become so common, one speaker has called for sending an ‘upbeat’ message to pupils who no longer identify with their birth gender.  Such a message could include holding a ‘celebratory event’ with a cake, she says.

Now, for anyone sitting on the fence, surely the promise of a cake would certainly decide it.  But if it were a cake free-for-all, would there be any ‘normal’ pupils left with that irresistible inducement on offer?

It seems the authorities are bending over backwards to encourage young people to opt for a sex change (free on the NHS, of course) – and that is the degree to which confusion reigns in our end-of-an-era society.

And that brings me back to the markets.  According to the Elliott wave model, stock indexes are approaching the end of wave 5 of a multi-decade bull market.  We know that complacency (an extreme bullish trait) is rampant with low VIX measures.  Many other indicators, such as bond spreads and put premiums are giving the same message.  All signs point to a major top is nearby before a devastating deflationary depression sets in.

My scenario calls for all major stock indexes to collapse once new highs are in.

But first, I need to see new fifth wave highs in the major indexes.  I have covered the Dow extensively so let’s have a look at how the Japan Nikkei 225 is shaping up.  Remember, it is trading well under the historic bubble high in 1989 at 39,000 so is already in a severe multi-decade bear trend, as reflected in the constant deflation in the Japan economy now for years.

That is not to say, great profits were not available to traders on both major up and down swings.  Here is the monthly chart since 1997:

Indeed, the swings have been huge in terms of profit potential and most show terrific Elliott wave patterns.  And note the lovely blue multi-year trendline which the market kissed and then staged a scalded cat bounce  on its decline in late 2016.

According to my labels, that was wave 4 of what will be a five up.  My wave 3 is classic long and strong and it contains its own five up (can you count those waves?). Being in the final fifth wave up, we should see five internal waves with preferably a momentum divergence when the fifth of the fifth tops out.  But that day is yet to come, but not far off.

Let’s zoom in on the weekly:

From last summer’s wave 4 low, I have purple waves 1,2 and 3 and we are currently in wave 4 down.  Note how nicely wave 3 topped out in the region of the Fibonacci 78% resistance.

The maximum downside for wave 4 is the wave 1 high at the 17,200 area, otherwise wave 4 would overlap wave 1 high and that is not allowed.  If that occurs, I will count the rally as an A-B-C, with devastating consequences.  So for now, I am working on the five up scenario.  Here is the daily chart:

With the fine detail exposed, just admire the textbook horizontal wedge at the wave 3 high – and on a momentum divergence.  The break of the lower wedge line was an ideal signal to short the market to ride wave down, of course.

With the trend firmly down, I can set downside targets at the various Fib levels as shown.  Because the 50% and 62% levels are the most frequent places for a reversal, I am favouring one of these.

The Dow and S&P finished last night breaking an important support line and will follow the Nikkei down.

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