Monday, August 26, 2013

New Home Sales Tumble


- Decent end to the week continues the bounce started Tuesday, though some fare better than others in on again, off again bounce.
- New Home sales Tumble in a perhaps not so surprising miss.
- Fed speakers talk out of both sides of the taper.
- Gallup reports higher unemployment.
- New Fed chair faces new normal lower GDP.
- Relief bounce continues, leaders still solid, but the move is still a relief bounce.

Relief bounce continues.

Tuesday the relief bounce was on for all indices, Wednesday it was not. Thursday it was back on. Friday it was on, but more on for some indices than for others.

SP500 6.54, 0.39%
NASDAQ 19.08, 0.52%
DJ30 46.77, 0.31%
SP400 0.14%
RUTX 0.20%
SOX flat

Early in the week and on Thursday, growth indices moved better. Friday the large caps, both NASDAQ and NYSE, were favored. That was not necessarily a good thing for the market even if it suggested the move broadening out. As the larger caps improved the smaller issues didn't look all that good, at least in terms of their index patterns.

SP400 bumped the 10 day EMA with a hangman doji. It is trying to get up to its gap down point from two weeks back, but Friday it was tougher trekking.

Russell 2000 broke through the 20 day EMA and is at the lower gap point from two weeks back. Still looking for a gap fill before this move fizzles. A bit better than the midcaps but just a bit better. At least the bounce is going according to plan

SOX was rather disappointing. It didn't want to move higher until Thursday as it gapped and ran. Friday it had to come back from losses to close flat. Holding where it needed to but it didn't lead the move higher. It started with its hold of support as the other indices were still falling, but it could not convert that into upside leadership.

NASDAQ was not bad with a gap back into the uptrend. After the 3 hour Thursday hiatus some volume returned as NASDAQ rallied. That works.

SP500 gapped and rallied through the 50 day EMA. Still on the bounce that for SP500 really started Thursday given Wednesday it gave up all of the Tuesday upside and a bit more. Still room to run up to the gap point (lower at 1679 or 16 points).

DJ30 posted its second upside session after a nasty fall the prior two weeks. Definitely relief here.

Overall yes the market is bouncing. The index patterns, however, still suggest nothing more than a relief move. Not a lot of power on the move and that can be okay as it does not shoot its ammo up in a couple of moves. The patterns, however, as noted, just don't scream a major break higher.

Leadership is interesting in its contrast. Still plenty of stocks in good positions to move higher and many that are moving higher. Others are coming up off of selloffs that brought them to key support. We have a few of those stocks on the report for a rally back up in some well defined trading ranges. DO, RL, LPX are a few that are in position to roll back up in ranges. ANSS, ININ, SLB and many others are in position to run higher while others are on good moves.

The leadership versus index pattern dichotomy is indeed curious. Typically when there are many leaders moving the market reflects this. Problem is, the large cap indices are dominated by the big names and those indices move with those names. Thus the irony when those issues are struggling in their businesses and thus stock patterns when our economy the past 5 years has been geared to benefit them. Now THEY are having a hard time and that is hurting the action of the large cap indices.

THUS . . . the action remains a relief bounce until further notice. A relief bounce with A LOT of nice looking upside plays, but a relief bounce all the same. Until the leaders break up the negative of the index patterns will we turn off the 'relief bounce only' sign. The beauty is, if these leaders do change the character of the rebound then we profit handily from that.

The News.

July New Home sales tumbled 13.4% to just 394K annualized, well off the 485K expected and 455K prior (revised down from 497K). Largest drop since May 2010 and now at the lowest since 10/12.

The cause? A confluence of calamities for the economy. The 30 year mortgage hit a 2 year high as the Fed, who wanted a little inflation, is losing control of interest rates. Affordability just tanked and inventories jumped 4.3% to a 5.2 month level up from 4.0 months.

Then there is employment. Gallup reported Friday its rate at 8.6% for August, surging from 7.8% in July. Under-employed is at 17.7%. By the way, the 8.6% rate is the highest since 8.7% in March 2012. Last week more jumped on the 'story' that part-time jobs were the new normal for the US jobs market. The administration denies it is the healthcare act causing it, but with UPS said it had to drop 15K spouses from health insurance in order to save $60M in INCREASED costs since the healthcare law came into effect, it is pretty clear the healthcare law is indeed impacting how jobs are created and manned.

It only makes sense; it is how economics and regulation interact. Remember when Congress passed a bill prescribing fees on ATM transactions? Banks simply switched the fees to debit card usage. Basic economics.

The Fed is still trying to act as if a September taper is something that is still just a possibility. Bullard said there was no need to hurry in a taper. Lockhart, however, said he was 'comfortable' with a September taper if the economic data remained good enough.

You know what? I can guarantee you the economic data will be good enough barring an absolute implosion in the economy. The Fed, mainly Bernanke, is desperate to get out of the QE business. Fear of inflation talk is starting on the Fed as the Wednesday minutes reported. THAT IS ALWAYS the sure indication the Fed is going to end any easy money policy.

Bloomberg could not resist moving into the argument, opining as to the new Fed chairman's predicament of handling the sub-new normal GDP growth of 1.75%. Of course is that the Fed's business? Is the Fed really needed for anything? All it has done in the past fifty years is reduce our currency to a shell of what it once was. A currency is strong and at the 'right level' when your economy is strong, your markets open, your laws just and justly enforced. When that occurs people from all over the world want to put money into your economy and your economy grows, throws off excellent jobs, and your currency is strong and your citizens are happy and prosperous.

Are we there right now? Tens of thousands, yeah verily, hundreds of thousands of new regulations in the past five years, trillions of stimulus dollars (fake money) printed and spent, food stamps paid to 50M people, fewer working age people working now than four years ago, laws not uniformly enforced (healthcare law waived for businesses and Congress but not individuals, DOJ sues Texas for requiring voters to produce ID showing they are who they say so as not to cheapen the vote of each citizen yet the DOJ does not pursue club wielding thugs as voting precincts), etc, etc. The antithesis of what attracts capital. Singapore attracts more capital, new companies, and new money than the US now.

Oh well. I am not feeling well this weekend and this discussion is not helping. It is, however, a discussion that needs to be had because we are going headlong into history as another Rome without any substantive debate other than name calling.




Stats: +19.08 points (+0.52%) to close at 3657.79
Volume: 1.488B (+63.16%)

Up Volume: 1.02B (+260.8M)
Down Volume: 440.57M (+277.97M)

A/D and Hi/Lo: Advancers led 1.13 to 1
Previous Session: Advancers led 3.54 to 1

New Highs: 95 (+95)
New Lows: 16 (+16)

Stats: +6.54 points (+0.39%) to close at 1663.5
NYSE Volume: 533.022M (+2.9%)

A/D and Hi/Lo: Advancers led 2.3 to 1
Previous Session: Advancers led 4.12 to 1

New Highs: 86 (-14)
New Lows: 116 (-71)

Stats: +46.77 points (+0.31%) to close at 15010.51


VIX: 13.98; -0.78
VXN: 14.62; -0.82
VXO: 13.91; -0.81

Put/Call Ratio (CBOE): 0.81; -0.01

Bulls and Bears:

Bulls faded again, getting back down near the late June levels. Bears rose but are still basically in eh long flat range of the past five months. Not really showing any extremes.

Bulls: 43.3%. Trending lower after holding all around 50 for a month. Back down to the early July, late June levels. 48.4% versus 51.5% versus 52.1% versus 46.9% versus 43.8% versus 41.7% versus 46.8% versus 43.8% versus 45.8% versus 52.1% versus 54.2% versus 52.1% versus 47.9% versus 44.3% versus 47.4% versus 50.5%.

Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 21.6%. UP from the 20 level held for three weeks, but well below the highs form late June and early July. Not in any position to propel a big upside move. 19.6% versus 19.6% versus 19.8% versus 22.9% versus 25.0% versus 21.9% versus 22.9% versus 20.8% versus 19.8% versus 19.8% versus 19.8% versus 18.8% versus 19.6% versus 20.6% versus 20.6% versus 19.4% versus 19.6% versus 18.6% versus 18.8% versus 21.1% versus 21.1% versus 22.1% versus 21.1% versus 21.1% versus 22.3% versus 22.3% versus 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7%.

Background: Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


The index patterns still look weak on the bounce but plenty of leaders look strong. The issue are stocks such as GOOG and AMZN that are lagging and thus holding the indices lower. It could be a money switch back to less well known names. We will see. It will require the less well known leaders we are seeing stepping up. Maybe they cannot move the entire market but can move themselves. If that is the case we make some great money on those leaders. We will be willing to again put some money to work on a continued move but still in the context of a relief bounce.

Support and resistance

NASDAQ: Closed at 3657.79

3716 is the upper channel line for the November 2012 to present uptrend.
Next major resistance is around 4100 as NASDAQ hits 13 year highs

The July 2013 intraday high at 3625
3634 is the November 2012 up trendline
The 50 day EMA at 3570
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 2011 up trendline at 3346
3295 is the June 2013 low selloff
The 200 day SMA at 3282
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high

S&P 500: Closed at 1663.50

1687 is the May high and post-bear market high
The November up trendline at 1745

The 50 day EMA at 1661
1654 is the June 2013 peak
1576 from October 2007, the prior all-time high
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
The 200 day SMA at 1556
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
1499 from January 2008
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows

Dow: Closed at 15,010.51

The 50 day EMA at 15,243
15,318 is the June closing high
15,542 is the May 2013 intraday high

14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
The 200 day SMA at 14,384
14,198 from the October 2007 high
14,149 is the February 2013 high
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation

Economic Calendar

August 23 - Friday
New Home Sales, July (10:00): 394K actual versus 485K expected, 455K prior (revised from 497K)

August 26 - Monday
Durable Orders, July (8:30): -5.0% expected, 3.9% prior (revised from 4.2%)
Durable Goods -ex tr, July (8:30): 0.6% expected, -0.1% prior (revised from 0.0%)

August 27 - Tuesday
Case-Shiller 20-city, June (9:00): 12.0% expected, 12.2% prior
Consumer Confidence, August (10:00): 77.0 expected, 80.3 prior

August 28 - Wednesday
MBA Mortgage Index, 08/24 (7:00): -4.6% prior
Pending Home Sales, July (10:00): 0.2% expected, -0.4% prior
Crude Inventories, 08/24 (10:30): -1.428M prior

August 29 - Thursday
Initial Claims, 08/24 (8:30): 330K expected, 336K prior
Continuing Claims, 08/17 (8:30): 2969K expected, 2999K prior
GDP - Second Estimate, Q2 (8:30): 2.1% expected, 1.7% prior
GDP Deflator - Second Est., Q2 (8:30): 0.7% expected, 0.7% prior
Natural Gas Inventories, 08/24 (10:30): 57 bcf prior

August 30 - Friday
Personal Income, July (8:30): 0.1% expected, 0.3% prior
Personal Spending, July (8:30): 0.3% expected, 0.5% prior
PCE Prices - Core, July (8:30): 0.2% expected, 0.2% prior
Chicago PMI, August (9:45): 53.0 expected, 52.3 prior
Michigan Sentiment - Final, August (9:55): 80.0 expected, 80.0 prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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