Non-Traditional Contrarian Indicator Hints Bottom is Near

Tuesday, 06 Sep 2011 08:56 AM

By Rick Pendergraft

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Since I started writing this blog for Moneynews.com, I have mentioned a number of different sentiment indicators for the market, commodities and individual stocks. This week I want to point out a new indicator. Well the indicator isn’t new, but my findings are new.

Last Tuesday, the Consumer Confidence Index (CCI) was released for August and the reading was an abysmal 44.5, the lowest reading in over two years.

This report caught plenty of attention in the financial press and there were a number of analyst on CNBC that were talking about how awful the number was and how it was indicative of worse things to come for the economy and the market.

As a contrarian, I always try to look at things from a different view.

With this in mind, I found the CCI data going back to 1977 and put this data into a chart with monthly closing data for the S&P 500.

What I found was another valid contrarian indicator. The lowest readings on the CCI came in May 1980, February 1992 and March 2009. All three of these readings came just ahead of strong rallies by the S&P.

On the contrary, the highs in the CCI came in the summer of 1989, the spring and summer of 2000 and the summer of 2007.

Based on these findings, the CCI is yet another indicator that is suggesting that the market downturn has reached or is close to reaching a bottom.

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rick22chart.JPG

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