Wednesday, January 26, 2011

Consumer Confidence Index and The Stock Market

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Each month The Conference Board surveys 5,000 U.S. households. The survey consists of five questions that ask the respondents' opinions about the following

  1. Current business conditions
  2. Business conditions for the next six months
  3. Current employment conditions
  4. Employment conditions for the next six months
  5. Total family income for the next six months
Consumer Confidence seems to be having a hard time getting off the ground.
The index is recovering but not even close to the recovery in the Stock Market
as measured by the S&P 500 and at the same time both the Confidence Index
and the S&P500 are very closely correlated. Why is it correlated you might
ask? Well, its the masses that invests in the Markets and its the masses (5000) that
answer the questions that form the Confidence Index. So why did the Confidence
Index not recover exactly as the Markets recovered?. Well, it was not the masses
that drove the Markets up from the bottom in Mar 2009, that was the Professionals
and big Hedge Funds, the Public was on the sidelines, they were too scared. One
interesting aspect of the  Index is the fact in topped in 1989-2001 with the
Boom and never reached those highs again. Another aspect is the type of formation
which the index has traced out. Its known as a Head & Shoulders formation with a
Left Shoulder and a Right shoulder and a Baseline which was broken during the Market
Crash. Once the Baseline is broken particuarly on a Chart that stretches Decades then
its serious business. I believe the Index will make somewhat of a recovery and then fail
once again when the Markets tops out and very soon. Bottom line.The Stock Market
move was a fake, a suckers rally which is not sustainable.
The Confidence Index will make a halfway recovery and then turn back down with
the Double Dip, but the Markets have to top first before the Dip.

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