New Home Sales Drop...Again

Top Line: The stock market wants to tread water for a while and especially as it waits for the Fed to move. The Fed will make their move on Wednesday, not Tuesday as we previously mentioned. We repeat that the Fed has ample room to decrease rates because the market rates have fallen faster than they have lowered. The stock market should have a lid on it near our retracement level of 12,750. It would seem that there will be some trading between our lows of last week and this 12,750 range (and, surprises to the downside).

The Bernanke Fed, particularly its fearful leader, Bennie, have taken some harsh criticism over the past week for their abrupt 75bps rate cut last week. The media is even saying that the Fed is being handled by the stock market, what it wants the Fed gives. What the stock market wants this week is a 50bps drop in rates so one would have to conclude from that, the Fed will deliver. This is well within reason from the interest rates in the short term Treasury's.

With the rates being cut last week, and probably again this week, the market is focusing its efforts on the financial stocks. On Monday, the banks and housing were the hot stocks with McDonald's getting punished for its earnings discussion. We should probably watch the likes of McDonald's and Starbucks to get an idea how the "little" guy is faring. Big MacDonald's was down almost 6%while Citigroup and Bank of America were both up about 4%.

The big number from the economic data perspective was the new home sales for 2007 and December in particular. We can only say dismal is the word, not surprising, but still dismal. Even November was revised down. The housing market is still in trouble, no surprise there. With only a few buyers out there and all kinds of sellers, there is a long way to go to clean this up. Maybe if the Fed can just lower rates one more time...Right.

After the market closed, American Express (AXP) announced earnings that were sort of in line with expectations, down 10%, but the reason was because of higher customer defaults on credit cards. Again, no surprise, but the news items of low home sales and poor earnings from AXP only provide bulls fuel to hope for that Fed rate cut being bigger. Bad news equals rate cuts equals good news so bad news equals good news. With our math skills that just doesn't add up.

We were going to summarize the points of the SOTU (State of the Union) address this evening but there really wasn't much to say except that the president wanted to let Congress know that they should pass the big rebate proposal and Fast. The idea is, you remember, that we aren't really in a recession but we want to make sure we don't have one. The president talked about growth slowing--no real contraction, you see. The stock market sees these things as normal, so therefore, also bullish.

FSI: 82.92 (the four horsemen are Not financials)