Sentiment

 

 

by Larry Levin

Pollyanna enjoyed a wonderful stroll last week as she whistled past the grave yard right through Friday. Another report was released at the end of the week that was bad, as well as a raft of similar reports in other countries.
 
According to Bloomberg “The Thomson Reuters/University of Michigan final index of consumer sentiment decreased to 67.5, the lowest level since November 2009, from 77.5 in February, the group said today.

”Gasoline prices hovering near the highest levels since October 2008 are straining the finances of American households, whose spending makes up about 70 percent of the world’s largest economy. While unemployment has fallen for three months, Japan’s earthquake crisis led to a plunge in stock values, at one point wiping out all of 2011’s gains.”
 
This data, like nearly all reports, contains several sub-components one of which is an “expectations” reading.  The higher the reading, the higher ones overall expectations are for the future.  According to the high priests of recession statistics (the NBER) this reading was at 70 when it declared the official end to the recession.  What’s interesting about Friday’s “expectations” portion of the Consumer Sentiment report was that it suffered a massive plunge from the prior month’s 72 reading, to 58.  It was the 5th largest drop in history.
 
Despite the Federal Reserve’s contention that overall prices remain level because falling iPad prices offset higher food and energy prices, the average guy in the country doesn’t seem to buy it.  As Bloomberg said above, higher gasoline prices (and many others) are straining the finances of American households, thus the HUGE drop in future expectations.  
 
Nevertheless Pollyanna, clad in her most fashionable rose-colored glasses, drove the stock market even higher on Friday.  
 
Due to the Japanese earthquake and mega-tsunami, consumer sentiment in Japan has plummeted, while sentiment in South Korea fell to a 23-month low.  The Koreans are also worried about very high oil prices.  Perhaps South Korean economists still count oil in its inflation numbers.  Sillies!  They just need to exclude it like Americans do and their problems will go away.  Honest.
 
It’s no better in Europe.  According to Bloomberg “U.K. consumer confidence fell to a record low in February as Britons grew more pessimistic about the sustainability of the economic recovery and the outlook for jobs, Nationwide Building Society said.”
 
U.K. consumer confidence may dip further after this weekend’s large protests that turned violent in some areas.
 
Apparently the French are concerned over high oil prices too.  Because of this, French consumer confidence has fallen to an 8-month low.  Again, the French just need to exclude it from inflation gauges and all will be well.  They just need a little lesson in subterfuge from Messrs Greenspan & Bernanke.

But don’t you worry about a thing.  As long as Pollyanna has a deeper shade of rose-colored glasses in her possession – all will be well.

 

Trade Date: 3/25/11
E-Mini S&P Trades*
(before fees and commissions):

No “Secrets” trades filled.  Algorithm positions (4)  “Reading the Tape” positions (9) …combined Secret’s, Algo, & “Reading the Tape” total… -2.50

Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!