While it’s interesting to have confirmation that one of the most relevant Pain Trades that remains in the hedge fund community is “short the US Consumer”, it’s always interesting to consider the context of that interesting point.
In the 2 part chart below, Andrew Barber shines a light on where this morning’s better than expected US Consumer Confidence number fits. The top part of the chart focuses on the our intermediate term TREND line, whereas the bottom part of the chart broadens our perspective to the long term (back to 1979).
Understanding that, in the intermediate term (3 months or more), that some of the Q1 2009 confidence readings are some of the lowest on record is very important. That explains, partly at least, why the US Consumer Discretionary ETF (XLY) is the best performing sector in the SP500 today of the nine we have in our Sector Views. From a contrarian perspective, the Pain Trade on US Consumer shorts remains up as a result. It’s the highest short interest group in our SP500 Sector Studies. Being long of short interest continues to pay off.
In the long term however, this morning’s US Consumer confidence reading of 54.10 is a LOWER-HIGH (albeit barely) than those dead cat bounces we saw in both September of 2008 (61.4) and May of 2009 (54.8).
Interesting is as interesting does and, remember, tops are processes, not points.
Keith R. McCullough
Chief Executive Officer