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Posts Tagged ‘S&P500’

How’s the Housing Market Doing? – Depends on What Data You Look At

It’s been over three years since the first signs of trouble began emerging in the U.S. housing and real estate market. Standard & Poor’s just released the latest Case-Shiller Home Price data so where do we stand now? Market pundits have been cheering the percentage price gains in the Case-Shiller Home Price Index for several months and telling bearish investors to forget the past and go right back to the same assumptions that caused the real estate crises in the first place. To support their theory, they simply point to charts like the one below.

Case-Shiller Percentage Year over Year Price Change Index

Unfortunately, the above chart gives a very skewed picture of what is actually happening to U.S. home prices because we are coming off of such a low base. To account for this statistical anomaly, I prefer to look at what actual prices are doing with the chart below.

Case-Shiller Home Price Index

Looking at the first chart would leave you to believe that you’re about to “miss” the next boom in real estate but using the second chart for added context will surely give you pause. The U.S. Government began inflating the housing bubble all the way back in the 1980’s with aggressive home-ownership policies spearheaded by Fannie Mae, Ginnie Mae and Freddie Mac. Wall St. helped the bubble along with financial “engineering” and then the Federal Reserve even stepped in to do its’ part after the dot-com crash by lowering rates dramatically for an unprecedentedly long period of time.

All these factors make it very hard to get a real idea of what housing prices should be because the markets have been manipulated so completely. For a best guess, we can look back to where prices bottomed in the 1990’s or we can look at metrics such as income to home price ratios. Unfortunately, no matter what you look at (aside from the housing bulls’ percentage price change chart), things do not look pretty. The 1990’s levels leave us with a long way to fall and inflation-adjusted median income has fallen.

Let’s just hope that I’m wrong and the housing bulls are right…

-MJB

Short Term Trouble, Long Term Gift? (SPY, SSO, SDS, SH, /ES)

October 30, 2009 4 comments

Sorry about the lack of recent posts, I’ve been pretty focused on the markets lately.

Last week the bears broke some technical setups where the bulls had a big upper hand. I started to sell positions at that point and increased my selling this week as the charts got uglier. Thursday was absolutely short covering. Looking at the up/down volume and advance/decline ratio’s from Wednesday to Friday, you can see an almost symmetrical reversal that means the market was overwhelmingly short, covered and put the shorts back on. This current short setup has a target of $1023.90 on the /ES (E-Mini S&P500 Futures). Let’s take a look at some charts:

KillZoneLong

You can see here that we bounced off of our long term downtrend line and today we closed below our nearer term support uptrend. I’d like to hope that if we close above it things will be fine but I think that is unrealistic. It’s hard to imagine why the market should be much higher than 1200 considering the long term structural issues that the U.S. is still facing. Even if the dollar continues to fall, we are net importers; so while international corporations may get revenues in stronger currencies, they still have to pay to much for input costs. a weaker dollar would be nice if we were still a manufacturing based economy but we aren’t. Next Chart.

HeadShoulders

You can see on this chart that the most recent surge took place on higher volume. However, the volume faded on the way up and picked up steam on the way down which is not a good sign if you’re a fan of Dow Theory. The good news is we have a long term inverted head and shoulder pattern (I admit I have seen better ones) which could give us support around $970.

SupportShort

I normally wouldn’t have given much weight to the H&S pattern (green line of support) but it also coincides with what should be a strong 50% fib retracement at 985. It is also an area where the shorts will be taking profits at their targets.

I will be in a conservative bear mode (and short through SH or SDS if the market somehow manages to rally back above 1065) until we get down below 990 where I will begin going long again. I will also consider a small long position through SSO around 1018-1020 where there is another decent long set-up.

Get your shopping lists ready everyone!

-MJB