Possible Top Last Friday

Market Action:
Besides the fact that we said the new home sales would be reported on Friday, we did get to see the existing home sales.  We’ll have to wait until Monday morning to get those new home sales which are expected to be 995K as we mentioned in our last post.  As for the existing home sales that came out a half hour after the opening bell, they were stronger than expected and were up about 4%.  We here at the Update are scratching our proverbial heads wondering how this could happen but the report is there for the whole world to see.  

The reason we bring up the existing home sales is that when the news hit the tape, the market jumped with the Dow moving up over the 12,500 mark.  No, it didn’t move over it by much, maybe 10 points but it did go above it.  We do want to remind the astute players that the existing home sales don’t get recorded until closing so those sales were made a fairly long time ago—before all of this subprime news hit the media.  The new home sales, reported on Monday morning, are recorded when the sale is made so it is a much more up to date figure.

Opinion/Analysis:
Maybe we sound like we’re whining about the report on existing home sales but we really can’t understand how this number could have gone up.  This does not deter us from looking at the bigger picture of the market which shows us the topping pattern that we have been looking for.  The market should have seen its high around a half hour into Friday’s session and we expect a down turn from these levels.

There is always the possibility that the upside has not run its course but we do see several signs in the technicals that we follow that lead us to believe that the corrective wave is over.  There are some sharp declines coming over the next several months and we are about to see one of them.  We can’t predict the exact day but it is very near.  

Our Moves:
That said, we will be looking to increase our exposure to the short side of the market by adding some more puts.  Friday morning when the Dow pushed through 12,500, we were able to set up one position and we decided on the QQQRT’s and got in at 2.13.  We thought that Monday may bring a little more upside so we are looking at some other positions tonight and will continue to pursue them in the morning.  Maybe we will have another opportunity in the morning.

Upcoming News Items for the week:
Monday—February new home sales—yes, really this time
Tuesday—March Conference Board consumer confidence
Wednesday—February durable goods orders
Thursday—Final 4Q GDP
Friday—February personal income and spending

Dow Industrials:  12,481.01  +19.87
VIX: 12.95
HUI:  340.86
QQQQ:  44.12
QQQRR: 1.23 bid
QQQRT: 2.26 bid
RYVNX:   16.72
RYAIX:  21.38
RYCWX:  35.71
TLT:  88.79
BEGBX:  13.87