Tuesday, October 28, 2008

Terrible Consumer Confidence Equals Good Stock Performance??

The 32 print on the Consumer Confidence number is getting a lot of attention because it was a record low. But, SentimentTrader.com has an interesting comment on the price action in the S&P 500 after "trough" prints on Consumer Confidence. "The previous troughs in Confidence were in December 1974 (43.2), May 1980 (50.1), October 1982 (54.3), and February 1992 (47.3). By six months later the SPX was higher every time by an average of 21.1%. On the other hand, Confidence reached an all-time high in May 2000 (144.7), and October 1968 (142.3) prior to that. You wouldn't have exactly been happy holding stocks after those instances, after a year, the S&P was down both times by an average of 8.8%."

The only point I would make is that it is very difficult to have a time horizon of six months in this market. One hour is an eternity let alone six months. That said, October 28 is turning into a pivotal trading day as the headlines have been awful and a number of key stocks have acted terrible this morning(GS, MS, JPM, DB, OIH, ect). Volume has been light and the broader averages are far more resilient than you would think given the fundamental and technical backdrop. The market needs to hold current levels because an additional decline of 10 to 15% in the S&P 500 will cement terrible economic outcomes. Traders should be long with a stop-loss at around 848 on the S&P 500.

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