Why down may be the new up

When everyone believes the economy can only get worse, you should start to look for a rebound.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Carolyn Bigda writer-reporter, Money Magazine

America: Better off and worse off America: Better off and worse off America: Better off and worse off
It's been seven years since the last recession. Times are tough once again, and people are telling us how they're doing.
CDs & Money Market
MMA 0.39%
$10K MMA 0.35%
6 month CD 0.37%
1 yr CD 0.68%
5 yr CD 1.37%

Find personalized rates:

Rates provided by Bankrate.com.

(Money Magazine) -- Feeling gloomy? That may be a good sign. Widespread pessimism often suggests that better times are ahead. (After all, once you hit bottom, the only way to go is up.)

So what are the omens pointing to now?

Well, several measures of the current mood seem to say that we're closing in on that perfect dose of misery - but may have a little way to go yet.

The Consumer Confidence Index, which measures household optimism and inclination to spend, has fallen 40%, almost as much as at the end of the 2000 market downturn.

When the index drops that sharply, investors may start to buy - and the market rallies.

Fund flows measure how much money is going into and out of mutual funds. This year investors have pulled more out of stock funds than they've added - $33.4 billion, reports AMG Data Services. That spells fear, often a harbinger of a market bottom.

The Investors Intelligence survey of market newsletters shows that most advisers are now bearish.

But here's the rub: While the bull-bear difference has dropped to - 13.7 (the number turns negative when there are more bears than bulls), technical analyst Tarquin Coe says he won't consider calling a bottom until it drops deeply: below - 20.

Lest you get too happy about the bad news, you should know that demand for equities on the New York Stock Exchange (often a signal of a turnaround) hasn't revived.

Since January it has weakened, says Mark Arbeter, chief technical strategist at Standard & Poor's Equity Research. "Institutions are not putting new cash to work," he says.

Keep an eye on these indicators - and some cash at the ready so you can jump on the next rally.

Ned Davis Research has found that six months after the market's low within each of the past 10 recessions (defined as a significant decline in economic activity), the S&P 500 has, on average, rebounded 24%. In a year the return was 32%.

How does your religion affect your finances? Money Magazine is seeking families willing to discuss the dollars-and-cents expenses involved in practicing their faith - the cost of everything from religious schools and dietary restrictions to tithing and faith-based investment limitations. If interested, please email your name, contact information and family photo, along with a brief summary of your salary, savings and religion-related expenses, to gmannes@moneymail.com.  To top of page

Send feedback to Money Magazine
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
50 years of the Ford Mustang Take a drive down memory lane with our favorite photos of the car through the years. More
Cool cars from the New York Auto Show These are some of the most interesting new models and concept vehicles from the Big Apple's car show. More
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.