Top Line: Tuesday's reversal qualifies as a "surprise to the downside" because there were several who thought the worst had been seen. The pattern in the market is still bearish and we continue to think more downside is right straight ahead.
The market opened with a grin and then got good news on the manufacturing front and tried to "jump" but didn't. Then about mid-day, the wheels sort of came off but the market recovered most of its losses going into the last 90 minutes of trading.
Where do we begin? There were a few standouts in the news that we wanted to report. First, Erick left us a comment on the housing market and we had to find the source of the story. Apparently, a builder is desparate to sell some high priced homes. If you bought a $1.6 million home in one location, he would Give you a second home valued at around $400K in another neighborhood. Erick was trying to imagine paying the taxes and insurance on both houses.
The other items were the Bernanke speech, the Toll Brothers (TOL) news, the manufacturing news, and GM to mention a few. The story we read tonight was about Ed McMahon, Johnny Carson's old sidekick. The story said that Mr. McMahon was having trouble making payments on his Beverly Hills mansion and that Countrywide Financial was seeking to foreclose.
It seems Mr. McMahon had run into some financial difficulties when he broke his neck about 18 months ago...here's the amazing stuff...so he was having trouble getting work. Mr. McMahon is 85 years old and his $4.8 million house was on the market but he was having difficulty selling it. He was $644K behind on the mortgage and had just received a $300K home equity line of credit, also from Countrywide. This is truly amazing stuff.
GM announced significantly lower sales and this seemed to prompt a selloff in the afternoon, which we don't really understand. Gas prices are at $4 across the country and GM is having trouble selling SUV's...Shocker. So, we don't really think that caused the selloff.
Earlier in the day Bernanke had been spouting off about the Fed being concerned that dollar weakness may be manifesting itself in higher inflation. We hate to break it to the Fed Chairman but isn't that the Definition of Inflation??? Like they are going to start getting tough on inflation now. They're the ones who helped the Dollar get weak in the first place with their constant cutting of interest rates. Still, the gold market fell in tandem with the oil, which was down about $3 on the session.
But, the most amazing story of Tuesday is the Toll Brothers (TOL) news. These guys are incredible. They are now whining that the government should be doing something to create housing demand. Let's see, what business is TOL in? Oh, that's right, housing. What are these guys doing?
Selling should be the name of the game...
FSI: 93.83 (not much sustainability in the FSI)