- An analysis of the state of the American consumer, through the lens of their emotions and expectations.
- An estimate of how far rates could fall.
- An estimated start date for the recession.
- The technical signal that confirms our macro analysis.
- Subscription tier Explorer: Full setup—entries, exits, and targets on both daily and weekly timeframes to trade an economic slowdown, through a leveraged inverse ETF.
- Subscription tier Frontliner: Full setup to trade the cyclical sector that’s about to correct, according to the macro sequence.
- Includes two alternative vehicles to trade index overextension.
The State of the American Consumer and Why a Correction Is Imminent.
#47 Current expectations of the American consumer—and the trades they’re generating, at a systemic level.
We’ve already looked at this from the perspective of real and disposable income—over six months ago here.
Now, let’s examine it through the lens of current consumer expectations. This is no longer theoretical. These are human reactions and emotions in near real-time—with just a one-month lag.
As a refresher:
GDP = C (68%) + I (18%) + G (16%) + (X (13%) – M (15%))
The percentages reflect actual weightings within current GDP.
The so-called “miracle” of the U.S. economy has always rested on its consumers tied to the financial system. In a favorable (and complex) economic ecosystem, the American consumer has leaned heavily on credit to access all kinds of goods—from homes and cars to smartphones.
In March 2022, interest rates started climbing from 0.25%, reaching 5.25% by July 2023. Today, they stand at 4.25%–4.50%, and the market is pricing them at the same level through May 2025, with an 86% probability as of this writing.
That trajectory led to this.
Survey by the University of Michigan: What are your expectations for the next six months?
How does the average consumer feel today?
Survey by The Conference Board: Present Situation vs. Future Expectations.
Quoting directly from the Conference Board report:
“The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—dropped 9.6 points to 65.2, the lowest level in 12 years and well below the threshold of 80 that usually signals a recession ahead. The cutoff date for preliminary results was March 19, 2025.”
Conference Board: Current and expected household conditions.
Positive expectations are falling, and negative ones are rising—like two trains heading in opposite directions on the same track.
Where are we today? Where are we headed, and how far is it?
To answer that, we return to interest rates—this time, real rates.The goal is to filter out the noise caused by inflation expectations and the term premium across different periods.
Here’s what we found relative to the last four recessions.
The red-shaded area shows the timing and depth of the yield curve inversion prior to each recession.The larger red zone represents the current situation.
To summarize—at least for now—real rates have only fallen 2%. Based on historical patterns, they may still have another 2% to go.
Numbers.
We believe we’re entering an economic slowdown or recession.
If we take the duration and depth of the current yield curve inversion as a guide, this one should be larger than previous ones.
We’ve already discussed the leading times and the three interpretations of the yield curve—and how all three pointed to May/June/July 2025. We covered it here.
So now what? Here’s the chart that matters—a historical perspective.
The chart we shared in the previous issue.
Same chart today.
We have a confirmed bull trap on the daily chart.
The correction process has begun.Stage 4’s narrative has entered the market.
The time for words is over—it’s time for action.
Setup: Proshares Ultra Short Russel 2000. (TWM)
Big picture – Historical value. Each candle represents one year!
Remember the Point & Figure charting system—it’s one of the best tools for identifying trends.
The reason? It removes time from the analysis.
Pro: A more reliable system for spotting trends.
Con: Very slow to confirm reversals.
Daily
Cycle.
We’re trading counter-trend, aiming to anticipate the formation of the DCL (Daily Cycle Low).
Oscillators.
Think of the Stochastic like the RPM gauge in a car—it tells you when you’re over-revving and need to hit the clutch.
The MACD, on the other hand, shows you the road ahead.
Two completely different concepts.
Timeframes, triggers, entries, exits.
Weekly horizon.
Monthly horizon
- The two time horizons require different position sizes to accommodate the appropriate stop levels for each trade.
- This is a trade we’re executing with a weekly trigger, mainly because of the path we see ahead.
- It’s also valid as a daily trade, but in that case, you’d likely be leaving money on the table.
- It’s a good entry point for a long-term holder, but if that’s your goal, a leveraged ETF isn’t the best option—it’s too expensive to hold over time. There are better vehicles for that.
Across the following subscription tiers.
- Subscription tier Frontliner: Full setup to trade the cyclical sector that’s about to correct, according to the macro sequence.
- Includes two alternative vehicles to trade index overextension.
As always, these are not recommendations. This is the weekly work of a group of traders, done for a client base.
We’ve decided to make it public for marketing purposes!
For more info on subscriptions and pricing, click here.
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We’ll stay in touch.
—Martin