eleven surprising stock market indicators

8/14/2019 Eleven Surprising Stock Market Indicators

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Eleven Surprising Stock MarketIndicators

Since the dawn of trading stocks, investorshave attempted to predict the direction of the markets, making calls based oneverything from solid research to gutinstincts. In this vein, market indicators havebeen developed, acting as tools to helpinvestors predict future market movements.

Although countless indicators of variedusefulness exist, there is a specialbreed that finds itself off the beaten path, for obvious reasons. Some are humorous,others scientifically studied, but all have onething in common: they attempt to predictfuture market performance. Not to mentionthat they can be rather entertaining.

With that said, keep in mind that usingthese indicators is at your own risk,although the high degree of reliability (not tobe confused with validity) of some maysurprise you...

From:-Hemant Beniwal



Hemline/Skirt Length Indicator

• This theory suggests that the direction of theeconomy can be predicted based upon the averagelength of hems in that year’s new fashion lines. If skirts are short, markets are on the rise.Conversely, if skirts are long, markets are headingdown.

The rationale is that longer skirts are worn whengeneral consumer confidence is low, demonstratingfear and lacked spending. When skirts are short,consumer optimism and confidence is high,indicating a bullish market.

Though not a generally accepted indicator, major shows such as NYC’s fashion week do offer aunique perspective into the global psyche; wheredesigners from around the world, workingindependently, come together to unveil that year’sdesigns. These designs are at least in partinfluenced by the culture and economy surroundingthe designers.

In early 2008, from London to New York to Milan,reports suggesting the drop in hemline length wereabundant… and so were the references to thestock market. Looking back to reports from 2007and 2008, the headlines are eerily prophetic:Reuters Sept 07:Low Hemlines Spell Bad News for the Market?

http://www.reuters.com/article/topNews/idUSN0637620920070907?feedType=RSS&feedName=topNews

http://www.reuters.com/article/topNews/idUSN0637620920070907?feedType=RSS&feedName=topNews



The Boston Snow Indicator

• This simple, one-for-one indicator suggeststhat a white Christmas in Boston means arise for stocks the following year. The mostcommon example is in 1995, when morethan 11 inches of snow fell on Boston. In1996, the S&P was up more than 20percent, and the Dow increased more than26 percent, so what’s the correlation?

In reality, there is no statistical correlationbetween Boston’s Christmas snowfall andpositive performance in major marketaverages, which is why it is also called the“BS Indicator,” named by some NY Yankeesfans on Wall St.

In the past 30 years, Boston has seen 9White Christmases, according to theFarmer’s Almanac. In the years following,the S&P 500 was up 5 times (+14.99 onaverage), and down 4 times (-7.83 onaverage). It seems the Boston SnowIndicator may be more of a coin toss andless of a solid indicator.



Super Bowl Indicator

• The Super Bowl indicator is based on the belief thata championship for an AFC team predicts a declinein the stock market for the coming year, and a winfor the NFC means the stock market will be up. TheNFC is comprised predominantly of original NFLteams, from before the 1970 merger with the AFL.(Original NFL teams that switched to the AFC whenthe AFL and NFL merged include the Steelers, theColts and the Browns.)

The indicator has been pretty consistent over theyears when it comes to the original NFL/AFL teams.Of the 22 NFL wins, with Dow and S&P 500 havebeen up 12.3 percent and 12.2 percent on average,while over the 14 AFC wins, the Dow and S&P havebeen down 4.8 percent and 3.6 percent,respectively. These numbers don’t take intoaccount expansion teams that have been createdsince the merger.

Luckily for this year both Super Bowl contenders

- the Arizona Cardinals and the Pittsburgh Steelers- were both original NFL teams. Although there maybe no logical connection between Super Bowlwinner and the stock market, the results havecertainly been consistent. For more stats on thisindicator, check out this post on our By The Numbers Blog .

Of note, for each of the five prior Steelers Super Bowl wins, the Dow has had double digit gains.

http://www.cnbc.com/id/29257460/28735590







Billboard Top 100 Indicator

• The newest indicator on this list is rooted in popculture — it's got a good beat, and you can danceto it.

Phillip Maymin, assistant professor at thePolytechnic Institute of New York University,released a study in late 2008 that analyzes theconnection between volatility in the market andtrends in popular music.

Maymin analyzed the “beat variance” in songs fromthe Billboard Top 100 chart using sophisticatedcomputer software, looking at songs from 1958through 2007. He found that songs with high beatvariance — individual tracks that shift tempothroughout the song — are preferred in times whenmarket volatility is low. When volatility is high,people tend to prefer songs that have a moreconsistent beat.

Mayman suggests that high beat variance is more

intellectually draining, and thus less popular duringtimes of high volatility. His paper also analyzestrading volatility based on his findings, and thepotential profitability of the indicator.

Can this trend be trusted? Maymann himself suggests that mood is the key driving force of thisindicator, which has been known to affect markets.It certainly is the most scientifically approachedindicator on this list…



Lipstick Indicator/Lipstick Effect

• This bearish indicator is based on the ideathat when individuals feel uncertain aboutthe future, they turn to less-expensiveluxuries, most notably vanity items such aslipstick. The trend suggests that lipsticksales increase during a recession or timesof economic uncertainty. The use of lipstick

has also been suggested to be a “moodenhancer,” which would understandablyfunction to lift spirits during depressingtimes.

According to the New York Times, this termwas coined by Leonard Lauder, thechairman of Estee Lauder, who noticed asurge in lipstick sales in the downturnfollowing the September 11 attacks. Howhas this indicator held up in 2008? The NewYork Times reported in November that salesof cosmetics had risen more than 40percent in the last months of 2008 withother sources reporting cosmetics sales upacross the board.



Harvard MBA Indicator

• This is a long-term indicator founded in quite a bitof logic. It looks at the percentages of HarvardBusiness school graduates entering into variousmarket-sensitive jobs, such as investment banking,private equity and securities trading. The indicator signals investors to exit the market if more than 30percent of graduates take these jobs, whileinvestors should go long if less than 10 percent of

graduates move into these fields.The indicator is meant to demonstrate long-termtrends based on the attractiveness of Wall Street

jobs. The idea is that the more Harvard gradsentering the financial job market, the more likely themarket is nearing a top, or building a bubble that isabout to burst. Conversely, when markets arelagging, fewer want to enter Wall Street and it mayindicate a buying opportunity.

The indicator was created by Roy Soifer, a Harvardbusiness graduate. In 1987 and 2000, Soifer’sindex gave sell signals, and the S&P moved +2.04percent and -9.78 percent respectively. However,the 1987 call seems rather prophetic, given thestock market crash that Fall.



January Effect

• First recognized in the 1980s by Don Keim, agraduate student from the University of Chicago,was the January effect. He observed thephenomenon dating back to 1925, where small capstocks outperform the broader market and mid-to large cap stocks in the month of January.

The trend arises from a historical sell-off trend thatoccurs in December, as private investors (who tendto disproportionately hold small cap stocks) sell

their securities, creating tax losses in order to offsetcapital gains. The January effect results as theseindividual investors will reinvest following a drop inprices after the relatively artificial surge in sellorders.

However, the January effect has been lesspronounced in recent years, with the increasedpopularity of tax-sheltered retirement funds,which remove the incentive to sell for a tax loss atthe end of the year.

There is also the idea that according to thedirection that the market takes in January, the restof the year will follow. “As goes January, so goesthe year.” For more information on this, check out arecent post on our By The Numbers Blog .





Aspirin Count Indicator

• When times are tough, headachesabound… and aspirin sales go up! Theidea is that, as a lagging indicator,stock prices and aspirin sales areinversely related. So, when the salesof asprin go up, the market goes down.

This is generally considered more of ahumorous theory than a concretestrategy.

How did this lagging indicator performin 2008? Wyeth reported that sales of pain/headache reliever Advil were up 2percent (to $673 million) compared to

a year earlier, noting a sales increaseof 8 percent (to $171 million) in thefourth quarter. So, at least for 2008there seems to be a correlation, butthen again, the aspirin count indicator has never been formally studied.



Pallet/Cardboard Box Indicator

• The Pallet/Cardboard Box indicators arestraightforward and rather logical. Basically, thehigher the demand for corrugated boxes andshipping pallets — necessities when shippingproducts to customers — the higher the demand for the products being shipped.

Today, virtually everything purchased on a largescale at some point was in a box or shipped on apallet. Known followers of the cardboard boxindicator include Alan Greenspan, who was knownto look at cardboard box numbers, among other things, for insight into shifts in the economy.

In today's down economy, numerous businesses inthe corrugated box industry are posting losses.Among them was European firm Smurfit KappaGroup PLC, the continent’s largest producer of thecardboard boxes. Smurfit’s revenues fell by $269.9million in 2008 from 2007, with operating profitsfalling 50 percent, according to companydocuments.

It seems the cardboard box indicator can give somepretty reliable insight into the ebbs and flows of themarkets. In a similar approach, many look at thetransports to prognosticate that increased shippingimplies a growing economy.



The Big Mac Index

• Developed by The Economist, the Big Macis dubbed “the world’s most accuratefinancial indicator based on a fast-fooditem.”

The indicator is based on the theory of purchasing-power parity, which is the notionthat one dollar should buy the same amountof product in every country. The Economistsuggests that in the long run, the exchangerate between two countries should reachequilibrium, and the ability to buy the sameitems in each country should remain in-sync.

The Economist selected the Big Mac for itsubiquity — it is sold in about 120 countries.The index, however, only lists Big Mac PPP

levels in 34 currency zones, according totheir most recent report. The comparison of actual exchange rates with the Big Mac’spurchasing power parity ostensibly shedslight on whether a currency is under- or over-valued. The Economist provides athorough history of its index on its Web site.

http://www.economist.com/markets/bigmac/

http://www.economist.com/markets/bigmac/

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