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Consumer confidence falls in July

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Consumer confidence fell to a five-month low in July as the Conference Board reported its consumer confidence monthly index dropped to 97.1 in July, which was substantially below Junes 106.3 reading. The present situation index fell to a reading of 99.2 from 104.9, while the expectations index declined to 95.7 from 107.2. All three readings were the lowest levels reported since February.

Lynn Franco, head of the board's consumer research said, "The continued decline in the value of stock market portfolios, coupled with the ongoing reports of corporate scandals, have taken a toll on consumer confidence. A continues slide could very well jeopardize the economic recovery."

There is little correlation between the consumer confidence index and consumer spending, but the markets have been treating the monthly gauges of consumer attitudes as reported by the Conference Board and the University of Michigan as all but prophetic in recent months.

It has become somewhat of a vicious circle in recent months as consumers recoil at the bear market, which further depresses stock price, and so on.

Today, we're seeing the consumer sensitive retail sector as depicted by the Retail HOLDRS (AMEX:RTH) $78.26 -2.17% and S&P Retail Index (RLX.X) 282 -2.57% see declines. Among the Dow components, consumer-related stocks like General Motors (NYSE:GM) $44.92 -2.5%, Home Depot (NYSE:HD) $30.09 -2.84% and Wal-Mart (NYSE:WMT) $48.70 -1.67% are seeing some selling.

The Dow Industrials (INDU) 8554 -1.8% is giving back about 158 points of yesterdays gains, while the broader S&P 500 Index (SPX.X) 885 -1.49% trades down 13 points and the NASDAQ Composite (COMPX) 1,319 -1.16% is lower by 16 points. The also broad NYSE Composite (NYA.X) 476 -1.61% is down 7 points.

Breadth is negative on the NYSE with decliners outnumbering advancers by a 2 to 1 margin, while over at the NASDAQ, decliners hold the edge by a 9 to 5 margin.

There have been 60 stocks hitting new lows on the NYSE versus just 11 new highs, while the NASDAQ has 57 stocks at new 52-week lows versus 15 stocks trading new highs.

Volume is rather light at this stage of the session with just over 500 million shares traded at each exchange.

Jeff Bailey
Senior Market Technician
Option Investor

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