I know it has been a few days since I have posted notes here. Sorry, but the sell and move of my home was more than I could have asked or imagined, not to mention that you always have more “stuff” than you thought or want anymore. I am in to the homestead and playing name that box, but happy to be somewhat settled. Thank you for all the ‘encouraging’ words of wisdom during the transition. That aside… what is happening in the market?
The broad market remains in an overbought state as investors determine what they believe looking forward. The economic data is supposedly improving. Both the White House and the Federal Reserve want us to believe things are improving. I have learned when you have to tell people things are better… they generally aren’t. The data dump will begin later this week and we will get to see first hand how ‘improved’ things are for the second half of the year. For those of you who read the daily research notes, you know I am very cautious currently about the market levels. We cannot assume anything on the upside or the downside currently. We are now starting the third week of consolidation or sideways movement for the broad markets. In other words, investors are looking for a catalyst on the upside. Earnings have helped the ‘V’ bottom off the low in July, but where is the follow through? Economic data? The Fed offering up words of wisdom tomorrow? Only time will tell and the good news is it’s likely to be this week if it is data driven.
What are we watching today?
Consumer confidence and housing data will be the big headlines for Tuesday, but it is tomorrow that will be of the most interest with Q2 GDP and the Fed announcement on interest rates that will provide any fireworks. This is the week of the data dump on investors and sifting through what matters versus what doesn’t will be the trick.
Housing is on the outs for now as investors have rotated to what they deem to be ‘better’ sectors. Remember money rotates to where it is treated the best the fastest. For now housing is not one of those sectors. XHB is testing support at the $29.25 level with the 200 day moving average just below. ITB is testing $21.50 as the homebuilders struggle with investor sentiment. All the more reason to keep this sector on your watch list for a reversal off support.
Interest rates have been moving higher again… the yield on the 30 year bond is 3.65% and attempting to move through the 3.7% mark. This is one of the reasons for money rotating out of the housing sector as home purchases have slowed. That will change as home buyers adjust to the new numbers going forward. However, if rates continue higher it will be a negative impact on not just housing, but most consumer items where financing is involve, i.e. large purchases. This is also impacting the interest sensitive assets such as utilities and dividend paying stocks. XLU and IYR have both struggled in this environment. Utilities have bounced off the recent lows and our trade in the sector is panning out short term. IYR however, has not been as fortunate and is currently testing support at the 50 day moving average.
Japan is moving lower after fighting back near the previous highs. The decline of nearly 7% the last four trading days is due for a bounce off support. Watch to see if this reverses higher or continues on the downside. The yen (FXY) has been in rally mode versus the dollar which is not helping. Still on my watch list after hitting stops last week on the holding.
Overall the markets are at a short term decision point. The technical data relative to the charts show consolidation near the the current highs. A reversal lower will take a catalyst if the sellers are to exert the effort needed for the markets to move lower. The buyers however, are not going away easily. Don’t count out the upside as this consolidation phase plays out. The economic data due out the latter part of the week may very well offer the confidence that some need. As I stated when I started this post… Don’t assume anything and let the direction play out. Manage your risk day to day based on your objectives. And most importantly don’t let the news or opinions of others change your direction, only the market can do that.