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Keeping a "Watch" on Signs of a Financial Top

Why $10,000 teddy bears debut at the stock market high

by Bob Stokes
Updated: August 01, 2018

One sign of an approaching financial top is an excessive pursuit of luxury.

You can go all the way back to the 1600s Tulip Mania: History shows a manic pursuit of luxury near the end of every financial mania.

More recent cases in point are the tops of 2000 and 2007.

Let's start with what the June 1, 1999 Elliott Wave Theorist said:

The only driver left for the world economy is the American consumer's extraordinary willingness to binge on luxury goods.... Newspapers are filled with stories about silver baby rattles, $10,000 teddy bears, waiting lists for $65 million Gulfstream aircraft [and] $15,000 handbags.

The DJIA topped just six months later (January 2000). It went on to surrender nearly 40% of its value through October 2002.

As we know, the stock market rebounded and went on to even higher highs.

By May 2007, the Elliott Wave Financial Forecast showed this chart and said:

MakingMost

In another dubious "arrival" on Wall Street, Merrill Lynch just produced a new luxury-firm stock index, The Merrill Lynch Lifestyle Index, which is shown at the bottom of the chart.... With its latest rally to a new high... it confronts the top of the trend channel that contains its five-year rise. This may be the end of the line for luxury.

As it turned out, that index peaked in July 2007, just two months later.

Yet some consumers still forked over big bucks for luxury items.

The August 2007 Elliott Wave Financial Forecast remarked:

The boom in luxury goods is no secret. But the latest surge carries extravagance to the outer limits of human imagination. Consider, for instance, the Maltese Falcon, a sailboat that Time magazine describes as the "largest, most self-indulgent ever made" and a "vulgar ostentation."

Just two months later, the DJIA hit another milestone top. Then it went on to lose more than half of its value.

What does this have to do with 2018?

Well, consider this July 25 subheadline from Bloomberg:

U.S. retail sales of Swiss luxury watches jumped by double digits in the first half of 2018

This is just one recent news item. The extravagances do not stop there.

EWI is also watching other important stock market indicators. Our insights will help you to prepare for the stock market's next big move.


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