CONSUMERS HAVE ALREADY STARTED REACTING TO THESE EXTREME HIGHS
Chris Vermeullen
Consumers, and consumer activity, should always be one of the top economic indicators traders/investors follow.
Additionally, the Transportation Index is another key indicator that leads the US/Global markets by 3 to 6+ months in most cases.
Consumers and consumer activity make up nearly 70% of the US GDP and account for a very large portion of the US/Global economy.
If consumers constrict spending and economic engagement activity over the next few months because of new COVID restrictions, perceptions that the economy has become super-heated, and/or any other issues related to US/World affairs, it is likely that the shifting Dampening Sine Wave process may see an accelerated Amplitude range related to the normal Dampening process compounded by the shifting Consumer sentiment.
Currently, the Michigan Consumer Sentiment data has collapsed -13.55% based on the August 13, 2021 posting – from a level of 81.2 to 70.2.
This comes after Consumer Sentiment has been above 71 since January 2012.
This new low data point for Consumer Sentiment may represent a big shift in how consumers are reacting to the global market trends and the US Federal Reserve pushing the envelope related to interest rates and economic activities.
If we stop to consider how important the consumer is and the psychological aspects of a shifting economy as we have described above, one must stop and ask two simple questions – “what happened the last time consumers pulled away from economic activities and how long did it take them to re-engage in normal spending activities?”.
The answer to that question is that this type of consumer reaction has only happened once in the past 10 years, based on data sourced from Investing.com using the Michigan Consumer Sentiment data.
April 9, 2020 (-20.31%) and April 24, 2020 (-19.42%) – right at the peak of the COVID-19 global shutdown crisis.
Prior to those dates, we have to go all the way back to 2010 & 2011, just after the Housing Market crash where the markets were struggling to regain upward momentum, and the Consumer Sentiment levels bottomed out at 56.2.
In Part II of this research article, we’ll continue to explore the shifting tides of the US and global markets in relation to our belief that the Dampening Sine Wave process is continuing to unfold.
This means traders and investors need to be prepared for extreme volatility events over the next 12 to 24+ months and be ever cautious of any new external economic crisis events.
These external events may prompt an increase in the Amplitude and structure of the Dampening Sine wave process and could completely disrupt the global market recovery process taking place right now.
More than ever, right now, traders need to move away from risk functions and start using common sense.
There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.
Don’t let yourself get caught in these next cycle phases unprepared.
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