New home sales plunged 13.4% no doubt reacting to the fairly rapid rise in interest rates. We find this getting little notice and it’s interesting to us given the state of the debate over Fed tapering. The conventional notion is that the Fed’s job is to take the punch bowl away just when the party is getting started. In the case of real estate, does it sound like the party is enjoying complete revelry or could it be a case of the party started out great and then fizzled out? We are not suggesting that the Fed will not taper; indeed, we believe that we will but our signal is the bond market. Rates rise when it is anticipated that the economy has hit a bottom. Of much more concern is the state of the stock market in light of these recent events. We are in a market correction, but Friday’s action indicates that resuming an uptrend may just be on the horizon. That is why we are paying particular attention to building our watch lists. However, if we do move from correction to uptrend, it may be short lived. The reason for that is the news lurking on the horizon. First of all, this is generally a lousy time of the year for the stock market. Secondly, we have the worries over the beginning of the end of QE. Even though we believe that the Fed will only start to reign in the dollars, we don’t’ yet know the effect of draining 5-10 billion dollars a month from the economy on the markets. Last week featured a major glitch in trading as the NASDAQ was halted for three hours on Thursday. One would have thought that the ebola virus had been unleashed given the media attention paid to this event. We would argue that glitches like this in today’s technology dependent marketplace will become de rigeur and not something to be greeted with much gnashing of teeth. That said, it is never pleasant to not know the price of investments for a minute let alone three hours. However, it clearly does not signal the end of the world as evidenced by the strong upward move on Friday. Microsoft’s CEO said that he would step down over the next year and the stock went up 7.5% and since that stock is part of the Dow, it rallied as well. Friday did feature an up day on stronger volume drawing that proverbial line in the sand that we are always looking for. Our stopwatch is now set on the next 4-12 sessions looking for the confirming rally that would resume the uptrend. That could happen quickly; that is why the watch list is critically important. Reiterating our theme of this last year; stay nimble, my friends. This and/or the accompanying information was prepared by or obtained from sources which DFE believes to be reliable but does not guarantee its accuracy. Any opinions expressed or implied herein are not necessarily the same as those of DFE and are subject to change without notice. The material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instruments or to participate in any trading strategy. The investments or strategy discussed may not be suitable for all investors. Past performance does not guarantee future results. Sale of option contracts can be risky and may not be suitable for all investors.
Posted on: Mon, 26 Aug 2013 13:22:32 +0000
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