Disney says social mood is off the scale!

I have been emphasizing how changes in social mood drive trends in the stock markets.  When the mood is very positive (as it is is currently), stocks rise in value. That is simply because when people in general believe the future is bright, they want to invest in it and buy stocks.

But when the mood is sour, people turn cautious about their future and buy fewer share investments and perhaps even sell some.  Bull markets then have a strong headwind and can turn into bear trends.  It’s really as simple as that.

To gauge social mood, there are some pretty reliable proxies.  Because stocks are now in strong bull trends, social mood is very positive. One of the litmus tests of positive social mood is inclusiveness of all varieties of human attributes into society.  That is, people of all sexual orientations and transgender individuals are totally included – no-one is a pariah any longer.

But when social  mood is negative, society breaks up into smaller units of like-minded people and become tribal again. Brexit is a looming wedge in European society’s coherence (with more to follow).

Not too many years ago, blacks in South Africa (under apartheid) and in the USA (under segregation in the deep South)  were persecuted and prevented from mixing in white society and the white establishment.  And homosexuality was a crime here in the UK until the 1960s.  Gays were excluded from polite society.

But now – what a transformation!  To appear in public as an entertainer without disclosing – and celebrating – your gay-ness is almost unheard of.  And  schoolchildren are now being encouraged to tell us if they believe they were born with the ‘wrong’ gender!  And if you wish to change your gender, that can be done on the NHS.  No problem.

The transformation in attitudes in my lifetime has been stunning – and is a manifestation of how society’s mood has grown ever more inclusive and positive for a very long time.

Of course, not every segment of society is fully on board with this inclusiveness – witness the Church of England’s still unresolved tussle with the gay clergy issue.

One of the barometers of social mood lies in popular entertainment of pop music and films.  Negative social mood will bring out violent and downbeat movies and pop lyrics.  Positive mood will propel upbeat movies and song lyrics to number ones.

I know La La Land did not win the Best Picture Oscar (see recent blog), but it must be one of the biggest grossing movies this year – and it harks back to the  old-fashioned boy-meets-girl theme with a happy ending.  That is as upbeat as it can get.  Positive social mood made it a big winner.  If that film was released when stocks were in a severe bear trend, it would likely have flopped (or not been made).

But what caught my eye this week was the news that Disney – that paragon of wholesome popular family entertainment – is for the first first time ever adding a gay subplot to its remake of Beauty and the Beast.  This is what the director says:  “LeFou is somebody who on one day wants to be Gaston and on another day wants to kiss Gaston,” Condon told Attitude. “He’s confused about what he wants. It’s somebody who’s just realising that he has these feelings. And Josh makes something really subtle and delicious out of it. And that’s what has its payoff at the end, which I don’t want to give away. But it is a nice, exclusively gay moment in a Disney movie.”

I have highlighted one sentence – a very important one – because to my mind, confusion in society lies just under the surface, despite the superficial ‘good times’ most of are enjoying with unemployment rates low, relative safety, decent salaries.

Disney film themes are a bellwether for social mood – and I believe this latest move to include a gay character may be the bell that rings at the top of social mood. Goodness, what would Mary Poppins say?

Bulls are most bullish when winning!

I sometimes follow James Bartholomew in the Telegraph and his latest article – I agree with Warren Buffett – shares are not expensive –  is a perfect example of when winning, bulls rationalise their feelings to an extreme.  He relates how many of his holdings are up big time and is obviously feeling pretty good.  But what is telling is what he uses to justify his bullishness.  He is agreeing with the world’s most famous investor, Warren Buffett.

Obviously, Buffet is a very successful man and if you can relate your own performance to him (as so may do), you are in exalted company.

We can all argue whether shares are expensive or not.  Just on the simple P/E ratio, shares are undoubtedly expensive historically.

But with the Dow making all-time highs almost on a daily basis, this denial of history (“It’s different this time because interest rates are low”) is surely a major topping signal.

Just remember one of Buffett’s most famous epithets: “When the tide goes out, you will see who is wearing no clothes”.

US stocks zoom higher

A remarkable feature of the post-Trump boom in share values is the simple fact that the rise in the Dow is far steeper than it was over the entire Fed era of QE. The Fed pumped untold billions into the market and produced a stunning rise, but nothing like the after-burner boost that Trump has inspired

I read a lot of articles that point to the many danger signals that lurk beneath the surface – and of course, these were apparent several thousands of Dow points lower down!  Just jumping in to short the market because you have just finished reading a highly plausible bearish  article is not a trading strategy.  It usually ends in tears.

Up until the November 8 Trump win, I was tending to the bearish side but not all-in because my method was not giving me a solid sell signal.  But when the market shot up afterwards, I was able to put Elliott wave labels on the chart – and to have a lot more confidence in my projection for a strong rally in a third wave.

Third waves are usually ‘long and strong’ and as I like to say, take no prisoners.  The bears have had their heads handed to them. No matter my personal views, I refuse to stand in the way of a third wave – and in fact, I prefer to join the party!

Of course, no tree grows to the sky so we must be prepared for the rocket to run out of fuel (to mix my metaphors!) at some stage.  The trick is in pinpointing when that is happening – and that is a very difficult task.  How much easier is it to join an established trend!

In my experience, it is the Elliott wave model combined with my tramline method that gives me the most reliable signals for a change in trend at any degree of scale.

Here is the 4-hr chart

Not only do I have convincing waves 1,2 and 3 (which contains its own five up in green), but wave 3 is contained in the trading channel between my blue tramlines!  This is about as pretty as it gets.  Note that the upper tramline has a lovely PPP (see text pp 52-53) where Wednesday’s 21,170 high made an accurate hit.

If this proves to be correct, I expect wave 4 down to start soon.  That being the case, I am on a lookout to take final profits on my longs and to position short looking for a move down of several hundred points. VIP Traders Club members are receiving my daily updates.