Low Confidence = Higher Prices

The press is spilling alot of ink about the low consumer confidence numbers.  On Friday, the University of Michigan reported that its consumer sentiment index plunged to a 13-year low of 76.9 in a preliminary reading for September from the 89.1 recorded for August.  Today, the Conference Board said its consumer confidence index fell 18.9 points to 86.6 from a revised reading of 105.5 logged in August. That marked the largest one-month decline in the index since October 1990 and put the measure at its lowest level in two years.

I’ve mentioned it before, but it’s always worth repeating.  Low Consumer Confidence is good for the stock market.  According to Steve Sjuggerud, "when Consumer Confidence is low, say below 75, you make a mint in stocks… Stocks have risen at an annualized rate of 24.2% a year since the 1960s when Consumer Confidence is low (below 75). When you compare that to 1.5% a year when Consumer Confidence is high (above 105), it’s easy to see when you ought to be a big buyer of stocks.  The reality (strange as it may seem at first) is exactly the opposite: The best time to buy stocks is when the economy looks bad, and consumers are dejected."

Source:  InvestmentU – Through 2004

Again, my ideal trading scenario is another sell off into the beginning of October to wash out the weak holders, coupled with a top in crude and gas prices – another sell off  would create a more sustainable bottom from which the market could rally into December.