The Confidence Index

Discussion in 'Technical Analysis' started by Babak, Oct 15, 2002.

  1. Babak


    Here is an excerpt from the recent communique of Richard Russell (Dow Theory Letters):

    "One item in Barron's does bother me, and it bothers me a lot. It's the Confidence Index, which is a good indication of where bond-buyers are voting with their money. When the bond crowd turns bearish, they move from lesser-grade bonds to the highest-grade bonds. The Confidence Index is the ratio of the yields of the two groups. A declining Confidence Index means that the bond crowd is moving out of the medium-grade bonds to the highest grade bonds (and thereby sacrificing yield as they make the move to safety).

    The CI dropped from last week's low reading of 68.0 to this week's scary low of 66.4 I gasped when I saw this figure.

    This is the lowest reading since the 1940s! I may be the last person on earth who follows the CI, but back in the '60s when the CI had a big following we used to say that the CI preceded the trend of the market by two to four months. That sticks in my mind. And it bothers me no end to realize that the CI is saying that the bond market IS VERY FRIGHTENED BY THE CREDIT PICTURE AHEAD. THE BOND MARKET CONTINUES TO MOVE TOWARD INCREASING SAFETY.

    Again, how does this affect the stock market? How does this affect the possibility of a good rally ahead? My guess is that if we get this rally, it's not going to be a long-lived rally. There's too much potential trouble ahead. The plunging Confidence Index suggests it."

    We all know about the problems of Citi, JPM and the recent credit problems of Ford with their debt trading as junk. The bond market has pretty much siezed up and there is no credit. The Bank of Brazil just hiked up rates 3% from 18% to 21% as they try to defend their eroding Real. Easy Al is running the printing presses 24-7 but he still has not created liquidity in the market.

    Although I agree that we are in bounce mode, I also agree with Russell that this is a very very dangerous time for the market. Long term investors are in for an unbelievable amount of pain.
  2. Richard Russell is a great mind. When he speaks, I listen.

  3. "Richard Russell is a great mind. When he speaks, I listen.


    Amen to that. Richard Russell is a legend in his own time.
  4. ramuk


    Can anyone suggest a source for a chart on the CI ?
  5. Babak


  6. Bouds


    Great Thread Babak. Thanks

    Trying to see if I can get this index through my datafeed provider - mytrack.

    I agree that the state of the bond market 'fear' will have an effect on any rally we are going through.
  7. Bryan Roberts

    Bryan Roberts Guest

    "Here is an excerpt from the recent communique of Richard Russell (Dow Theory Letters)":

    How recent is this excerpt????? and how does yesterday's consumer confidence index number relate?