The Consumer Confidence Indicator

Extreme Low Means Upcoming Strength

By Bryan Bottarelli
Monday, June 02, 2008 10:07 AM EDT
Mon, 2 Jun 2008 14:07:00 GMT

Dear Bottarelli Research Member,

Good morning, and welcome to the first trading day of June.

Over the weekend, I came across a statistic that I’d like to share with you first thing this morning.

The statistic surrounds around consumer confidence — which is something that I typically don’t pay much attention to. But the results of this statistic were just too important to pass up, especially when it comes to having a directional bias going into the summer months.

Here’s the situation…

Last week, consumer confidence dropped to its lowest level in 16 years — and this drop took the current consumer confidence readings down to a level we’ve only seen only five other times since 1967. According to a study by JP Morgan, every time that consumer confidence has dropped to these low levels, we’ve seen a rally soon afterwards. For example, in every case over the last 41 years, the S&P 500 has averaged a 15% return over the next 6 months after hitting these lows.

That’s quite a powerful statistic, especially when you consider a Dow chat that looks like the one we have now. As you can see below, the Blue Chips have just registered a 100-point loss on the day, which could indicate that we have a resistance point at the 50-day moving average. But the consumer confidence statistic from above tells a different story.

INDU

Faced with this situation, I’d like to remain in all of our current positions — while continuing to closely monitor the movements of the major market averages. I get the sense that technicians, economists, and floor traders are all “on the fence” when it comes to predicting the next major directional move, and this indecision leads to the choppy trading patterns we’ve seen over the last 2-3 weeks. So until we receive more clarity, let’s maintain our current ledger and sit tight. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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