Lower Existing Home Sales

You may not be surprised by this but the big news of the day was the existing home sales being down 5.7% from an upwardly revised November pace. Still, the data point is still there at 5.7% Lower than November. We are not surprised by the number and expect more of the same going through the year. The article in the WSJ was quick to point out that total sales for 2005 were up 4.2% from the 2004 pace and the median price was up 10.5% from 2004 to 2005. While these items are important, we would suggest that housing has probably seen its high point in 2005 and will show a decline in both numbers over the course of 2006.

When the news came out, the market dropped from its higher open. The Dow dropped about 60 points in a half hour and then tried to recover ending about where it was when it dropped 60. After all was said and done, the market basically was flat except for the NASDAQ 100 which dropped over 0.5%.

The real estate market is an important piece of the entire economy. This sector has employed many people, and while growing it has provided enormous liquidity for itself. Here at the WU, we think that the realization of the real estate turn in the stock market will cause a bit of a drop. This represents the core of our thinking on the stock market. We’re not sure the stock market is capable of figuring it out for itself but in time it will. While we know we keep hammering on this point, the fact is that the data points are coming in to support the theory.

And, as we have surmised over the past couple of months, the dollar looks to be going down again after a fairly decent up move in 2005. We mentioned that the dollar composite, which is what we concentrate on here at the WU, has dropped from an intermediate high of 120 back in 2001 to a low of around 80 in early 2005. By November of 2005 it had rallied back to the 92.50 level. Now, it’s dropping into the 80’s and this week fell below 88. This move doesn’t seem like much but we are keeping an eye on it.

We see significantly less bullishness out there for the stock market, meaning we don’t see much buying going on. The fact that buyers are not coming into this level probably means we will be dropping again soon. Today’s volume was high as was yesterday’s and there was little movement upward. We surmise that this is due to sellers meeting buying demand and when the buying slows down, prices will go down. The bulls have used a lot of fire power this year so far.

As you can see below, the TLT dropped quite a bit on Wednesday even with the poor housing numbers. We probably are staying too long at the party, what little partying there is in the bond market these days. If the bond market fails here and mortgage rates go up, the housing market will have even more difficulty.

That’s enough for tonight, but you Be careful out there…

Dow Industrials: 10,709.74 -2.48
RYVNX: 18.68
RYAIX: 21.96
TLT: 90.90 (ouch)
BEGBX: 13.38