Just as we were putting last night’s post to bed, we checked the over night futures contracts and they had plunged. I looked at the news and found that GM had just been subpoenaed by the SEC and thought maybe the two were correlated. Well, I don’t know if they were but GM got hit hard again today on the news dropping nearly 7%. Looking at trading today, it is difficult to tell whether GM really was the catalyst to the big sell off late in the day.
Yes, there was a bit of a sell off in the stock market today with the Dow Industrials at 10,229, off about 115 points just over 1%. That puts the Industrials back near the closing lows of the past several weeks, with three closes right near 10,215. We are not sure that the market has the ability to hold that 10,215 low or not but we will know soon. We are heavily short and are looking for a break that takes us down through those support levels.
The bond market wasn’t down today for a change but it didn’t have much energy in it. We are still long the bonds and will assume that money coming out of the stock market will find its way into the bond market temporarily.
In other news today, the durable goods orders dropped more than expected, 2.1% drop versus an expected 1.0%. This follows last month’s big 3.8% gain.
The big news that caught our eye was the New Home Sales figures. First of all, the rate of new home sales was up 2.1% from August but that was aided by the downward adjustment in August sales. Second, the median price fell 5.7% from August but still managed a whopping 1.9% increase in the median price from September 2004. Last, the supply of homes on the market rose 3.1% which represents 4.9 months of supply at the current rate of sales, this number was up 20% over September 2004. You probably can understand why we are watching these numbers. The rollover in real estate has probably started. Of course, credit expansions have a way of feeding on themselves so we may not have seen the end, but we are very close.
After the close this evening MSFT reported earnings. They did have an increase over last year but the stock got sold in the after hours trading. The over night market is not being affected too much by the MSFT news but with a big sell off like today, the market participants are thinking rally. We may not get one.
Maybe the market is connecting the dots that we have seen with today being big dots like the GM news (as GM goes, so goes the market), the durable goods orders, the new home sales details, and the possibility of higher interest rates. We do think that the market is very vulnerable to breaking the lows from the last couple of weeks.
One thing is for sure, the market will not be as dull as it’s been for the past 22 months. We are in for some changes in prices and before they decide to settle somewhere there should be some volatility. Hopefully you are prepared. Be careful.
Dow Industrials: 10,229.95 -115.03
RYVNX: 22.25
TLT: 89.60
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