What Is the Commodity Channel Index (CCI)?

The Commodity Channel Index​ (CCI) is a momentum-based oscillator used to help determine when an investment vehicle is reaching a condition of being overbought or oversold.

Developed by Donald Lambert, this technical indicator assesses price trend direction and strength, allowing traders to determine if they want to enter or exit a trade, refrain from taking a business, or add to an existing position. In this way, the indicator can provide trade signals when it acts in a certain way.

How to Calculate the Commodity Channel Index (CCI)

  1. Determine how many periods your CCI will analyze. Twenty is commonly used. Fewer periods result in a more volatile indicator, while more periods will make it smoother. For this calculation, we will assume 20 periods. Adjust the total if using a different number.
  2. In a spreadsheet, track the high, low, and close for 20 periods and compute the typical price.
  3. After 20 periods, compute the moving average (MA) of the typical price by summing the last 20 prices and dividing by 20.
  4. Calculate the mean deviation by subtracting the MA from the typical price for the last 20 periods. Sum the absolute values (ignore minus signs) of these figures and then divide by 20.
  5. Insert the most recent typical price, the MA, and the mean deviation into the formula to compute the current CCI reading.
  6. Repeat the process as each new period ends.

Why is it important?

Consumer confidence surveys are critical indicators of the overall health of the economy. When people feel confident about the stability of their incomes, it influences their spending and saving activities.

A pessimistic consumer worries investors in the U.S. markets. It raises the probability of falling interest rates and a weakening economy, both of which are detrimental to the dollar’s value.

Investors might sell the dollar and look for higher yields and a more robust economy elsewhere.

An optimistic consumer can raise interest rates, and the stock market returns to levels that provide a higher return relative to other countries in the world.

This would result in increased demand for the U.S dollar.

Where to find it?

The Conference Board is a subscription-based service, and unfortunately, the data does not appear on BabyPips.com’s economic calendar,

The best way to find it is to simply Google  “Consumer confidence.”

Background:

The Consumer Confidence Index measures how consumers feel about the economy, jobs, and spending.

Happy consumers are more likely to shop, travel, and keep the economy strong. Unhappy consumers become protective of their wallets which is terrible for the economy.

This report can occasionally help predict sudden shifts in consumption patterns. And since consumer spending accounts for two-thirds of the economy, it gives us insights into the economy's direction.