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Tomorrow the University of Michigan will report that consumer confidence is much better than expected.

Despite general employment concerns, declining home prices, retail sales, the H1N1 virus and the general feeling that things are still bad, the Oracle of Obama and the Dow at 8,300 appear to be bolstering consumer sentiment in May.  Tomorrow we will learn that consumers are becoming more confident that there is a chance for a strong economy over the next six months. 

The preliminary May reading of the University Michigan will suggest that confidence has risen to the highest level in six months.

Going into University of Michigan report we are long the XLY and have been buying some select consumer discretionary names (see www.researchedgellc.com) for our entire long and short positions.  On the flip side, yesterday we noted a significant increase in PUT activity in the XLY.  Clearly, somebody smells the fear that we don't!

With consumer confidence on the rise it's likely that consumers could also ease back on prioritizing needs over wants.  While the trend in April retail sales suggests that the majority of consumers maintain a needs-based bent when buying, an increase in confidence measures could suggest that consumers may wade back into the "want" spending pool.

Howard Penney

Managing Director

More confident in MAY - consumer