SP 500 At a 5 1/2 Year High

The headline we noticed this evening was the one you see above. We have been talking about this 1325 level in the SP 500 for a while now. With the SP 500 moving to a closing high on Monday shows the market was still willing to push a little higher. In our last post we talked about the Dow putting in a new high and with it a nice little cherry on top of this rally.

Well, maybe the SP 500 has done that instead. With a new high in the SP 500, there were nonconfirmations all around in the other indexes. The Dow, NDX, NASDAQ Comp and the RUT are all lower than last week’s closing highs; but more importantly, the intraday highs, those set during the trading day, were only broken by the SP 500, all of the other price indexes failed to make new highs against last week’s.

During the day, the Dow was up over 110 points but could only hold 67 by the close. The SP 500 lost three points from its trading high. There was some weakness going into the close, not much after such a powerful price move earlier but weakness.

Our other indicators are not confirming this move either, at least a majority do not. This market is showing price strength and big headlines but is failing to confirm any strength in the technicals. We hastily admit that the price move we have seen here in the last two weeks has been out of the blue and has hurt our portfolio. We, here at the Update, have to follow the indicators and not trade on emotion. We look at longer term trends and do not see this being able to sustain itself.

Going to the news of the day, we saw the housing numbers being a bullish item due to the perception that the market has. The news was that the price of homes fell year over year for the First time in over Ten years, but sales weren’t quite as bad as expected. Two things came to mind, one, the obvious weak economy, Fed is done rally, and, two, that since the housing numbers weren’t as bad as the market expected, the housing numbers are bottoming out and ready to rock again.

Please check out the WSJ article on page A2 entitled “Existing Homes’ Median Price Falls”. The article falls in line with most of the other housing news we have seen for quite some time. (Try to ignore Mr. David Lereah’s comments, if you can.) There is a chart that shows the year over year price change in homes with the heading of “Sinking Feeling” that is very telling.

The other news, running into some difficulty to be explained, was the price of oil. In the early going oil was down under $60, a strong 1.5% move down, first time below $60 in about six months. Then as stocks were bottoming in the first hour of trading, the oil prices started moving up as well such that by the end of the day oil was up 1.5% for a nice 3% move from the morning’s lows.

The bonds had another nice day. It’s a nice thing when oil and bonds can go up on the same day, nice but illogical. So we had another trifecta, with bonds, stocks and oil all up on the day.

We are adding the volatility index, VIX, to our numbers this evening. We expect an important increase in this index over the coming months.

Dow Industrials: 11,575.81 +67.71
VIX: 12.12
QQQQ: 40.57
RYVNX: 19.79
RYAIX: 23.10
RYCWX: 40.33
TLT: 90.31
BEGBX: 13.83