A Bounce

Before we get to the technical analysis below, which can be a little difficult to read, we thought we would recap the trading day for Thursday.  The GDP came in below expectations at 5.3% versus 5.8%.  This is considered “good” by the market who is hoping the Fed can stop the interest rate hikes.  The other number of note is the existing home sales which dropped about what was expected.  Don’t forget, this number is an old number because these sales are measured at the time of close not the time of sale, so there could be a month or more delay.  

Probably the most worrisome piece of information in the housing report is the inventory number which increased again.  There seems to be about six months of inventory on the market right now, that’s up about 40% from a year ago.  Friday’s WSJ has an article about the GDP and the housing report that has a quote from an economist at High Frequency Economics.  Ian Shepherdson is quoted as saying “What’s interesting is the unbelievable speed with which people are dumping houses on the market.  I don’t think the market can absorb this much supply this quickly.”  The article says that this 40% increase is the largest year over year rise since 1982, when the Realtor’s association began collecting data.  We continue to insist that housing will tell us what will happen to the economy over the next few years.  This report supports our view that the housing market is not very healthy.    

Here comes the technical stuff:  To continue our analysis from the Tuesday’s post, the Dow traded to a low around 11,030 on Wednesday which is a drop of 640 points from its recent high.  We are talking about intraday highs and lows.  A normal retracement of 640 points would be 245 points.  What that means is that a good first area of resistance would be about 245 points higher than the low on Wednesday.  Adding 245 points to 11,030 we get to 11,275.  The next area of resistance if that doesn’t contain the advance would be half the distance which would be 320 points taking us back up to around 11,350.  This is a 75 point range and we will be watching very carefully as we approach these levels.  We would recommend using these prices to sell into, especially if they occur at the beginning of the trading day.  

The market has been oversold for a few days and Thursday’s rally has relieved some of this oversold condition but not much.  We did see that the rally was not what you would call robust; maybe we will see a little more action on Friday.  The volume was strong but not as strong as we have seen during much of the decline.  On the day of the closing high, the NYSE volume was 1.59 billion shares.  On the two days before that, we saw 1.51 and 1.54 billion shares.  Then the decline started and we have been at or above 1.8 billion shares on every day except one, May 16th when we had 1.66 billion.  Yesterday the volume was 2.25 billion shares but today we only saw 1.72 billion shares.  I realize these numbers are dizzying but they are important.  I also know that we have a holiday weekend coming up and that could be a reason for the lower volume.  We still think these volume figures are worth sharing with you.

We wish you a safe and enjoyable holiday weekend.

Dow Industrials:  11,211.05  +93.73
RYVNX:   20.90
RYAIX:  23.40
TLT:  84.27
BEGBX:  13.61