Hemline Indicator

The Hemline Indicator

Not content with price movements, some technical analysts have broadened their investigations to include other movements as well. One of the most charming of these schemes has been called by Ira Cobleigh the Bull Markets and bare knees theory. Check the hemlines of women’s dresses in any given year and you’ll have an idea of the level of stock prices. There does seem to be a loose tendency for bull markets to be associated with bare knees, and depressed markets to be associated with bear markets for girl watchers.

For example, in the late nineteenth and early part of the twentieth centuries, the stock market was rather dull, and so were hemlines. But then came rising hemlines and the great bull market of the twenties, to be followed by long skirts and the crash of the thirties.

Unfortunately, things do not work out as well in the post World War II period. The market declined sharply during the summer of 1946, well in advance of the introduction of the New Look featuring longer skirt lengths in 1947. Similarly, the sharp stock-market decline that began at the end of 1968 preceded the introduction of the midi-skirt, which was high fashion in 1969 and especially in 1970.

How did the theory work out during the crash of 1987? You might think the hemline indicator failed, as after all, in the spring of 1987, when designers began shipping their fall lines, very short skirts were decreed as the fashion for the time. But along about the beginning of October, when the first chill winds began blowing across the country, a strange thing happened: Most women decided that mini-skirts were not for them. As women went back to long skirts, designers quickly followed suit. “Short skirts now look ridiculous to me,” declared Bill Blass. The rest is stock-market history. Now we know the real culprit for the stock-market crash of 1987.

But don’t get too optimistic about using the hemline indicator to give you a leg up on market timing. There is a problem for those who seriously would try to project these relationships into the future. While there is no theoretical ceiling on stock prices, there obviously is a ceiling on dress heights. Perhaps the advent of fanny-high micro-mini-skirts and hot pants during the early 1970s indicated that this stock-market theory had gone about as far as it could.

Burton G. Malkiel. A Random Walk Down Wall Street, including a life-cycle guide to personal investing. First edition, 1973, by W.W. Norton and company, Inc.

The Hemline Indicator. Photo by Elena.