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January 25, 2007

Tumbler

Jumbled signals continue to be more prevalent than usual as markets seem to have a recent tendency for reversals. A well-received earnings report from eBay failed to have the effect desired by bulls, and the NDX, after a quick pop higher at the open, spent the whole session in decline. The SPX coughed up all of yesterday's gains and came down to test... and fail... support at 1431, eventually ending the session down more than a percent. What a strange feeling, hey?

The news that seemed to spur the selling was the very weak existing home sales figure for December, and the fact that 2006 saw the largest decline in existing home sales in 17 years. While the inventory of unsold homes declined about 8% in December, the months-supply is still at a historically high 6.8. Furthermore, if homes sales are sinking, the decrease in supply is likely attributable to people simply taking their homes off the market. Therefore, the market still has considerable overhang.

Given all these signs of continued deterioration, vacuous and overpaid analysts were instantly spewing declarations of a bottom in housing. Morgan Stanley economist, David Greenlaw pronounced that the data "have shown clear indications of improvement or at least stabilization in recent months." Nevermind that during the Beazer earnings call this morning, the CEO stated, "At this point, we have yet to see any meaningful evidence of a sustainable recovery in the housing market." Well, what would Beazer's CEO know about it, anyway?

Precious metals were flat, having reversed early gains of about a percent. Equity traders felt like taking some quick profits in the miners, however, sending them down about a percent. I'm fairly well loaded on the metals front, but may take a shot or two on some long day trades if favorable situations arise. Despite the fact that the miners were lagging metals today, I refrained from attempting a trade simply because I thought the miners were ready for a breather. In any case, if people are truly beginning to connect the economic dots (see Equity Crash), they will soon realize that the Fed will be cutting rates soon, and that is nothing but good for precious metals.

So here is where we stand on my favorite index, the NDX: After what felt like an abbreviated blow-off rally in early January, we came down to the moving average and met resistance. Two attempts to break the MA failed and resulted, with the assistance of a voodoo-spin-doctor-interpretation of Yahoo's earnings, in a gap up runner yesterday. With bulls cheering for new highs, we suddenly see a very bearish engulfing day that stopped... yep, you guessed it... right at the moving average.

stock chart

It is obvious how important the 65MA has been to the NDX. Once this support is broken, I will be looking for the cascading decline discussed so many times on these pages. Folks, if the bulls get out of this one, I may just have to join them.

Okay, no, not really.

Disclosure: None

 

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