Housing Starts Fall

Tuesday’s news was about what we expected, lower housing and inflation denial.  On the housing front, April housing starts fell 7.4% against expectations of a drop of about 0.5%.  What did this report do?  It acted to dispel inflation concerns and help the Fed decide not to raise rates—when will they stop with this logic?!?  Then the PPI showed a 0.9% pop last month but not to worry, most of that was food and energy, nothing anyone really needs to worry about.  So, core inflation at the producer level was just 0.1%, see, no problem.

I think the mortgage market is starting to actually feel the pain even amidst all the optimism about rates and the economy in general.  Housing is such an economic driver, certainly that is true in this last few years, that the market will have trouble ignoring it for very long.  There are so many industries that depend on housing, not to mention all of the jobs that real estate has created over the past five to ten years.

For follow-ups, Wednesday brings the CPI and Thursday brings the LEI, leading economic indicators.  Both of these have the potential to be market moving but neither probably will.  It is more likely that the market will now be taken over by the underlying technicals that are in place.  This is the current market as we see it…

There has been a definite downdraft in the prices over the past week, or so, since the Fed announced.  The Dow has been much firmer than the broader market and the dollar has literally been clobbered.  For that matter, gold and other precious metals along with the mining stocks have also been hit.  Tonight we focus especially on the stock market as that is the primary focus of the Update.

The way a strong move in the market starts is for a trend to be broken and then a small correction of that break, giving people confidence that it was just a minor setback.  In fact at times like that the sentiment is very bullish due to the recent prior move.  Then it doesn’t happen, all of the bullishness that the market “feels” is just hanging out there and there are simply no buyers around.  This is a very dangerous time—like right now.  The market has dropped and now the last few days there has been an attempt to get back up but so far it just hasn’t happened.

This brings the market to what we technicians call the point of recognition, when every one starts to realize that the market is going down.  The buyers walk away and wait for better prices and the prices just drop.  The probability for this drop is very high for this point in time right now.  The stars are aligned as they say and the market is ready for a drop after all of this bullishness.  The time has come for the market to finally go down.

We hope that you have prepared for this event since we have reminded you to “Sell in May and Go Away” for a while now.  We recommend cash right now and we don’t think you will be disappointed.  

Be careful out there…be extremely careful.

Dow Industrials:  11,419.89  -8.88
RYVNX:   20.27
RYAIX:  23.04
TLT:  83.60
BEGBX:  13.64