Morning Update/ Market Thread 7/7

Good Morning,

Equity futures are roughly flat prior to the open. The dollar is up slightly after falling yesterday, oil is up, gold is flat, and bonds are down slightly after rising sharply yesterday. The move in bonds yesterday was not supportive of the small bounce in stocks. In fact, yesterday saw new closing lows on the Transports and on the RUT.

The action over the past few sessions has been interesting in that the major indices have been making incrementally new higher lows since July 1, yet in the futures market they have been making new incremental lows. To call it a “bounce” seems like an overstatement, I would call it more of a consolidation move, yet it is possible that it has been a wave 2 movement and that wave 1 of 3 bottomed on July 1.

Yesterday was a classic rush to test the 1040ish neckline from below. Remember, the H&S is now verified, the target is 860. We can fiddle around the neckline, but eventually odds favor getting to the target. McHugh believes that yesterday’s action made clear that 2 of 3 is in progress. In the 60 minute SPX chart below you can see the bounce up to retest the 1040 neckline – indeed, when looking at the wave structure it would appear to be a very weak wave 2 retrace so far. There may need to be one more wave higher that either does or does not exceed yesterday’s high and makes it above the neckline:

The still worthless MBA Purchase Applications index fell another 2.0% in the past week. Here’s Econoday:
Mortgage applications for home purchases fell 2.0 percent in the July 2 week. June vs. May, purchase applications fell 15 percent. May vs. April, applications fell 30 percent. This is further evidence, and strong evidence, that housing demand has fallen into a post-stimulus dead zone.

Extremely low rates may not be encouraging buyers much but they are encouraging those already owning homes to refinance their mortgages. The refinancing index jumped 9.2 percent in the week and is at its highest level since May last year, which was another period of very low rates. Thirty-year mortgages averaged 4.68 percent in the week.

What’s there to say? Housing has fallen off a cliff, landed on the rocks, and is still sliding face first down into the chasm below.

Yesterday’s Puget Sound Business Journal ran a small blurb stating that Western Washington pending home sale last month plummeted 28% from the June prior:
The number of pending home sales in Western Washington plummeted more than 28 percent last month from June 2009, according to the latest residential home sales statistics.

There were only 5,547 pending home sales (single family homes and condominiums) in the 21-county Western Washington area surveyed by the Northwest Multiple Listing Service (NWMLS), compared with 7,733 in June 2009.

NWMLS officials said that potential home buyers are “stuck.”

“In general consumers seem to be stuck in uncertainty surrounding the world’s economic concerns, our lack of jobs and the roller coaster of the stock market. They seem to be hunkering down despite the lowest interest rates in years,” said NWMLS director Frank Wilson, managing broker at John L. Scott Inc. Poulsbo, in a statement.

Buyers are stuck alright. This is one of the first times I’ve seen a real estate official admit that. If you own an upper-end home especially, odds are that you cannot sell it for what you owe on it in reality. Many are sitting in their homes trapped by the reality that they couldn’t move if they wanted to. The expense of rising taxes, heating, utilities, yard maintenance, and upkeep on their McMansions is draining their savings at the same time that the criminals on Wall Street are stealing their retirements in the market. “Stuck,” indeed.

New home sales in the overall western part of the U.S. are even worse, they fell a whopping 53% in one month from April to May as the tax incentives died.

Tomorrow we get weekly Jobless Claims data as the light data week continues to allow respite in the markets… for now.

The DOW Industrials are going to complete its “Death Cross” today as the 50dma will move below the 200dma:

The bond market’s move yesterday continues to say that all is not well as money continues to run for cover. The rapidity of the move down in the dollar is concerning to me also. Fast and unstable moves in the currency markets are a warning sign. These markets are huge, and fast movements catch the big players off guard and can cause rapid movements in capital. Those types of conditions are often present in the background when markets hit no bid type of situations. The dollar did find a bid yesterday after its period of near free fall, but roller coaster rides like that are a sign that not all is well.

Five Man Electrical Band - Sign, Sign, Everywhere a Sign: