2017 was a year of new highs for investors, from blue chip stocks to volatile movements in cryptocurrencies, there has been a continuation of President Obama’s economic policies that had been translated into financial gains which was a distinguishing mark of his Presidency. However, now as the first couple of months of 2018 have passed, and the excitement of the holidays have given way to solemn sobriety, a couple of indicators have been formed that there is a possibility that we might now enter a downtrend period.
Of course, the market has the tendency to surprise, and as Warren Buffet has said, "I never take bets against the US market", several indicators have suggested that there is a strong possibility of a pullback from the highs of the Obama years.
Currently on the monthly chart of the S&P, a red hammer has completed forming at the top of the resistance at the 161.8% fibonacci area juxtaposed against a long green candlestick. This signal could result in a potential bullish reversal, although in 2015, a downtrend did not occur despite the formation of a similar red hammer.
If we compare the current formation to other years in which a similar pattern had emerged, in 2000, 2007, and 2015, we can see that a downtrend occurred in both 2000 and 2007 but not in 2015. It is possible that after a period of volatility in the next few months, that a potential downtrend might be looming in 2018 through 2020 if the area of 243 support is not held by $SPY in the next year.
Since $SPY has already reached the 161.8% fibonacci retracement area in the 280s, a pullback or correction is most likely to occur as it has begun already. However, the current pattern is looking very similar to the one that transpired in 2000, but as long as no other events exacerbate the correction, it is still possible for the $SPY to recover and hold the support area of 243.
However, during periods of corrections or downtrends, it is necessary to be prudent and remember that the market usually rebounds after a couple of years, which could also present a great buying opportunity.
Long skirts = Bear Market?
For some time, there has been an urban myth that there is an inverse correlation to skirt lengths in fashion to trends in the market, in that short skirts signal a bullish era, whereas long skirts indicate potential downtrends, indicating a conservative mindset. Although at first glance it seems a bit preposterous, one has to admit that there is indeed an irrevocable relationship between art, fashion and the financial sector that has been in position since the turn of the century. Here is what Investopedia says about the skirt length theory:
Definition of the ‘Skirt Length Theory’
The skirt length theory is a superstitious idea that skirt lengths are a predictor of the stock market direction. According to the theory, if short skirts are growing in popularity, it means the markets are going up. If longer skirt lengths are gaining traction in the fashion world, it means the markets are heading down. The skirt length theory is also called the hemline indicator or the "bare knees, bull market" theory.
The idea behind skirt length theory is that shorter skirts tend to appear in times when general consumer confidence and excitement is high, meaning the markets are bullish. In contrast, the theory says long skirts are worn more in times of fear and general gloom, indicating that things are bearish.
Although investors may secretly believe in such a theory, most serious analysts and investors prefer market fundamentals and economic data to hemlines. The case for skirt length theory is really based on two points in history. In the 1920s - AKA the Roaring Twenties - the economic strength of the U.S. led to a period of sustained growth in personal wealth for most of the population. This, in turn, led to new ventures in all areas, including entertainment and fashion. Fashions that would have been socially scandalous a decade before, such as skirts that ended above the knees, were all the rage. Then came the Crash of 1929 and the Great Depression, which saw new fashions dwindle and die in favor of the cheaper and plainer fashions that preceded them.
This pattern seemingly repeated in the 1980s when mini-skirts were popularized along with the millionaire boom that accompanied Reaganomics. The pendulum of fashion swung back to longer skirts in the late 80s, roughly coinciding with the stock market crash of 1987. However, the timing of these incidents, let alone the strength of the potential correlation, is questionable. Although there may be a defendable thesis around periods of sustained economic growth leading to bolder fashion choices, it is not a practical investment thesis to work with. Even benchmarking skirt length in North American would be a challenging undertaking. The time spent auditing clothing outlets to establish the length of top selling skirts would take more time than it is worth considering that it is far from proven as to whether the hemline indicator is leading or lagging.
If we examine current trends in London/ Paris/ Milan fashion week that have recently taken place, the overwhelming consensus seems to be moving towards the trend of long skirts. From popular designers, to esoteric up-and-coming designers, the collective conscious seems to point towards a trend in long skirts, which could also possibly indicate a bear market, according to the "skirt length theory". This is just something entertaining to keep in mind, as we head into the 2018-2020.
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Disclaimer: This article is not intended as investment nor stock market advice, and is for educational purposes only.
This article originally appeared in www.globalfounders.london
By Sierra Choi