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Over the years, stock market followers have developed a number of “eccentric indicators”
to predict stock market movements. Not based on economic or financial data,
these indicators are “feel-good” or “hype” indicators that attempt to measure the
overall morale of the investing population. One of the oldest feel-good indicators,
first suggested by either the late Ralph Rotnem of Harris, Upham & Company (now,
after a long string of mergers, Citibank) or Ira Cobleigh & DeAngelis (1983), followed
women’s hemlines: As hemlines rose, so did the stock market, and as hemlines
fell, so did the stock market. Consider the Roaring 20s, when women wore
short flapper skirts and a stock market rise followed. When the stock market crashed
during the great depression, long, modest skirts followed. The hemline index implies
that as people become more exuberant, stock prices rise and clothing becomes more
daring, and as society becomes more pessimistic, people become more conservative
with their clothing and investment choices. Market and economy watchers have also
considered beer versus wine sales (people drink more beer when the market is down
and approaching a low), sedans versus coupes (people buy more sedans and fewer
coupes when the market is down), lipstick sales (when the market is down, women
buy cheaper brands), aspirin (a rise in sales correlates with distress about the market),
and the number of golf balls left at the driving range (people don’t leave balls
when the market is declining).

It must be emphasized that none of these indicators has an effect on stock prices.
If a direct relationship exists, it exists only as correlation without a direct link to the
markets. Indicators, to be truly useful, must have a rationale for their existence. Correlations
may be purely accidental and, thus, meaningless. For a discussion of how
some of these offbeat indicators have performed, go to
Historical Indicators

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