Retail Bubble Stocks Are Vulnerable

NEW YORK ( TheStreet) -- The Conference Board's Consumer Confidence Index is a barometer I monitor in order to assess the risk/reward for retail stocks.

Since 2007, this index has been well below the 90-to-120 neutral zone. This makes it hard to justify the strength some retail stocks have seen recently, which has driven them to all-time highs.

At 10:00 a.m. EDT Tuesday we learned that the Consumer Confidence Index fell to 62.0 in June, down from 64.9 in May.

The index is based on a monthly survey of 5,000 households. In tracking the ebb and flow of this index from 2005 to current, we can observe how consumers reacted as the seeds were planted for the "Great Credit Crunch" at the end of 2007 and during the Great Recession.

The Consumer Confidence Index reached a three-year high in June 2005 with a reading of 105.8. Remember that the homebuilding stocks peaked in July 2005.

In September 2005, the index recorded its largest single month decline in 15 years, to 86.6 from 105.5. It moved back above 105 as housing prices continued to rise into June/July 2006.

The strong stock market in 2007 kept confidence elevated even after community banks peaked at the end of 2006 and as regional banks peaked in February 2007. Then in September 2007, the index began to slump again, falling to 99.8 from 105.6. This was a warning for stocks as the Dow Jones Industrial Average peaked at 14,198 in October 2007.

Let's look at a chart of the Conference Board Consumer Confidence Index, courtesy of dshort.com Advisor Perspectives.

Note how the Consumer Confidence Index plunged during the Great Recession along with stocks and that both bottomed in the first quarter of 2009.

The "Great Credit Crunch" continues, with confidence between 40 and 70 in 2011 and 2012, well below the 90-to-120 neutral range. Given this analysis, it is tough to justify continued new all-time highs in the retail stocks.

Following are profiles for seven retail -- or in Walt Disney's ( DIS) case, "partly retail" -- stocks that have tested all-time highs in June.

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