The online WSJ (Wall Street Journal) had two articles side by side on Monday. The first was an article describing the housing situation in several markets around the county. The chart had two statistics on it, one, the percentage of homes that have reduced prices, about 40%, and, two, the change in the number of homes listed, about even or a little down. The other article was a report summarizing economists’ views on housing. The article said that by a two to one margin economists think that the worst of the housing bust is over. They cited the fact that the number of homes going on the market has slowed and that has to signal a turn around.
We here at the Update would caution these so-called experts that the true mark of a turn around is when the buyers return and not before. Just because sellers have given up on trying to sell their houses does not mean there is an increase in buyers. The speculators in real estate have basically vanished into thin air. They had accounted for as much as 40% of sales in the last few years. And, where were these experts a year ago when the housing market turned down?
In the news on Monday, the LEI, leading economic indicators, were up as expected and as we expected, it had very little influence on the trading day. This is an ongoing situation as the market seems to continue to grind higher day after day.
We recommend that you take a look at volume and you will see that there isn’t enough volume to really keep this market going. We have seen small upward price moves but very little volume to back up these moves. That’s why you don’t see very strong days, just a steady grind higher on most days.
Our momentum indicator seems to have topped and is now moving down. This has happened before in the last few months as the market seemed to get a little overbought and needed to correct a little. This time, the market is correcting a little and we will see if it will finally roll over. There is a good window here where the market has a chance to go down. You may think that the market can’t go down because it hasn’t for a few months but, just as it has been going up recently, it can go down easily. It is overbought and needs a break.
Look at the VIX below, it has now gone into single digits. Complacency rules—and that is very bearish.
Be Careful out there, real careful.
Dow Industrials: 12,316.54 -26.02
VIX: 9.97 (single digits)