Housing Market: Nice wrapper and a lovely bow, but the present itself is no gift
By Adam Lass & Bryan Bottarelli
In this article
The Commerce Department announced that new home sales skyrocketed 16.2% in April.
Durable goods sales were up in April and revised up even more for March.
With the S&P 500 unable to break convincingly through its seven-year highs, many market makers are calling for a drop.
Housing Market: Nice wrapper and a lovely bow, but the present itself is no gift
I've got good news and bad news. The funny thing is, it's all pretty much the same news.
Today the bean counters at the Commerce Department announced that new home sales skyrocketed in April. We are talking about a 16.2% spike here, the biggest month over month increase in a decade and a half. Before you uncork the champagne, you should be aware that this increase was concentrated almost solely in the mid and northern Atlantic states.
In the rest of the country, real estate brokers are still competing with homeless squeegee men for spots on the best panhandling corners. What's more, even in the critical Washington to Boston strip, the median price of a new home also set a benchmark by dropping the largest amount on record.
But wait: it gets even better, sorta kinda. The boys at Commerce seemed to have made a mistake last month, and it turns out that orders for pricy manufactured goods actually grew 50% faster in March as they originally thought. And in April, we saw even more growth there (although not quite as much as the boys at the brokerages were expecting).
Head spinning yet? Can't quite figure out what this all means? Don't feel too bad: several hundred thousand of your closest friends thought this was good news for the first hour or so of market action today. And then the Mickey hit them with a vicious thud (and share prices went thud too).
The hidden barb in today's news has little to do with housing sales or even housing stocks per se (although there is certainly a tangential correlation). If houses are selling again (albeit at sharp discounts), and durable goods sales are moving along at a good clip, then we might just be able to pull back from the brink of recession without the Fed lowering rates this summer.
“Sometimes good is bad. This takes away the anticipation that the Fed is going to ease interest rates because of the housing market.” -- Israel A. Englander & Co's Scott Fullman (via the A.P.)
That's right folks, it turns out that inflation is now the stronger threat, leading most (sober if not sane) analysts to concede that there is no additional free cash coming from Washington. Some even think that a rate increase might be in order.
I agree, but doubt that Zen Ben et al have the guts to do what needs to be done before Christmas.
Adam
Market Strategy: Note the Warning
Perhaps Fed Chief Ben Bernanke should give old Greenspan a call and let him know that while it's fine to go make a bundle on the chicken dinner-speech circuit after one's retirement, it's not a great idea to be going around using terms like recession and dramatic contraction to people who aren't used to hearing you say those words.
-- David Callaway, MarketWatch
I agree with David Callaway…
Yesterday, Alan Greenspan told a conference in Madrid (via teleconference) that the China market is due for a “dramatic contraction.”
This sent momentary shock waves throughout the markets -- and a Dow gain of 35 points transitioned over into a loss of 30 points.
By the end of the day, the news was absorbed and the Dow closed up 14, but the point here is that Mr. Greenspan had 16 glorious years to make his economic opinions known. And during that time, he chose to be as vague as humanly possible. Now that he's no longer the Fed chief, speaking with such a loose and descriptive tongue is rather irresponsible, if you ask me.
But let's move on…
The housing market is back in play today -- as the early trading session experienced a big jump after the sales of new U.S. homes unexpectedly jumped 16% in April.
The Commerce Department reported a seasonally adjusted annual rate of 981,000, handily bearing the expected pace of 865,000. But don't get too excited -- there's a big silver lining here. This sales increase was goosed by plunging prices. For example, the median price of a new home dropped 10.9% over the past year. So you're seeing a jump in home sales due to fire-sale price reductions.
Upon realizing this, U.S. stocks lost steam and turned a 90-point Dow gain into a 50-point Dow loss. And this all happened before noon. With the S&P 500 unable to break convincingly through its seven-year highs, many market makers are calling for a drop.
So be sure to note the warning -- regardless of what Greenspan thinks -- and own those puts!
Bryan
***
Adam Lass is the founder and manager of the WaveStrength Group, and is a contributing editor for Taipan Financial News. As the creator of WaveStrength's proprietary analysis system, Adam's expertise has shaped a franchise of successful investment newsletters and services, including WaveStrength Options Weekly and WaveStrength Apex.
Bryan Bottarelli is the head trading tactician for the WaveStrength Group, and is a contributing editor for Taipan Financial News. Coming off the floor of the Chicago Board Options Exchange (CBOE), Bryan uses WaveStrength chart forecasting to develop wining options plays for his service called WaveStrength Options Weekly. Bryan is also the lead editor of BottarelliResearch, an elite membership service that he independently publishes himself.
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