Housing Hanging Tough - a Harbinger?

George Brooks |

SUMMARY:

   Investors don’t appear to feel there is any reason good enough to sell. A sharp 10-day rise into overhead supply should give them reason to be cautious. If that doesn’t, how about  the alarming data coming out of  the housing industry, so critical to a further expansion of our economy ?

    Economic news from abroad  is a bit downbeat with a drop in China’s manufacturing index and similar softness in the euro-region economic recovery.

While the Group-20 finance ministers meet over the weekend with the prospect of developing  measures to stimulate private investment and increase economic growth, the Street hasn’t been focused on  international economics in recent months..

   On the home front, it is difficult to assess how much adverse weather conditions have impacted the economy.  Obviously, the weather’s  impact has been significant, but doesn’t that suggest a robust rebound in the spring ?. 

   Finally, are corporate earnings for the benchmark S&P 500 going to track a 10% growth rate in 2014, or will analysts be revising the outlook downward,  putting a lid on the upside potential for stock prices ?

TODAY:

   Yesterday’s rebound stabilized a technical pattern that could have taken stocks lower.  That rebound must follow through today to give it credibility.

      New support is DJIA: 16,020 (S&P 500:1,827 )

Investor’s first reada daily edge before the open

DJIA:  16,133

S&P 500:  1,839

Nasdaq  Comp.: 4,267

Russell 2000:1,162

Friday, February 21, 2014, 2014   9:12 a.m.

THIS WEEK’s FOCUS:  Housing Industry

   Tuesday, I called attention to the housing industry, noting that a number of key industry reports would be released this week, giving investors a feel for the Street’s confidence in its outlook.

   The reports were not expected to make good reading, and  so far this week that has held true with ugly numbers  for the Housing Market Index, MBA Purchase Apps, and Housing Starts with Existing Home Sales  reported today at 10:00 today.  (See stats under “The Economy” below).

   So far, the housing stocks listed below have held up well, probably because a non-recurring adversity (weather) is being blamed for the reports.

   If the Street looks beyond the impact of winter weather to better conditions, it will be buyers, especially on weakness. On the other hand, if the numbers are bad and the housing stocks tank, it would bode ill for the industry

Thursday:  Housing stocks stabilized with little loss even in face of a poor industry showing this week.

 

Beazer Homes(BZH: 2/14/14 - $21.26): Trying to turn up after dropping from  a January high of $25.34  Thursday close: $20.78

 PulteCorp (PHM: 2/14/14 -$20.02): Holding firm after rebounding from an August low of $14.23.  Thursday’s close: $20.02

Toll Brothers (TOL: 2/14/14 - $37.79): Putting in a strong performance after  basing out between April and October in the $30 area. Thursday’s close:$37.38

KB Homes(KBH: 2/14/14 - $19.03):Grinding out a recovery after a May peak at $25.14.  Thursday’s close: $18.80

DR Horton(DHI: 2/14/14 - $23.62): Recovering from a September – November base at $18 after a drop from its May, 52-week high of $27.45. Thursday’s close:23.33.:

   .

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BAD NEWS STILL equals GOOD NEWS ???

    We don’t know whether the Street has reverted to its “bad news is good news” mentality, hoping enough of it prompts the Fed to ease off on its taper schedule, or maybe the Street is looking beyond these economic numbers to an  economy that gains traction later this year and next year, hopefully with a boost from economies abroad.

   Maybe the Street doesn’t care anymore, and just wants in, good news or bad, because the U.S. markets are where the action is. Money managers must put clients’ cash to work or lose the business. What’s more, they have to perform, or lose the business, risk or no risk.

   And  until there is a viable alternative to stocks, there is no reduction in buying power, since for every “buy” there is a “sell,” which means the seller must go back in to  put his/her cash to work.

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A  BEST SIX MONTHS to own stocks – No more corrections ???

   Over the years, the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better  between November 1 and May 1 than between May 1 and November 1.

   The Almanac’s  “Best Six” goes back to 1950..  The six months is a snapshot between November and May.  Many major market advances often start before November, but the point made  here is the period between fall and May is where the action is.

  The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1

   Is this going to be another “BEST six months to own stocks ? .   So far, the DJIA is ahead  8.4% since October 31, 2013 even with a 7% correction in the interim. 

   Over of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best year up 25.6% (1998 – 1999).

   With the market off to a great start in October , it looked like  a BEST six months was a no-brainer. This concerned me, since my research indicated that

prior to the January –February correction, I warned over the last 25 years, there have been 14 corrections ranging between 6% and  16% during this November1  to May1 period. Seven of those started in January, two in December and four in February.

  We have had one correction so far since October 31, another correction is possible, but unlikely. 

   Over the last 25 years, only two corrections occurred during the November 1 to May1 six months.  In 2002 there was a 6.2% correction in January and a 6.5% correction in March/April.  In 2003, there was a 7.0% correction in Nov. 2002/December 2002 and  a 12.9% correction in January/March of 2003.

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JANUARY BAROMETER

As January goes, so goes the stock market for the year, according to the January Barometer (JB).* The 3.6% drop in the S&P 500 in January suggests a very challenging year for investors and clearly not as rewarding as 2013 when the S&P 500 rose 29% after a 5.8% rise in the preceding January.

   The JB boasts an 89% accuracy rate over the years with most of its misses explained by unpredictable events, such as war and  extreme bull/bear turning points.

   The rationale for the JB  having predictable value is that a new year is accompanied by year-end and new year portfolio adjustments and decisions based on  projections for the year ahead. It is also a time when institutions receive a lot of new money that must be put to work.

So far in 2014: The S&P 500 is still down  but half as much at a minus 1.6%.  However since January 31, its up 2.1%.  Conclusion: As a barometer, it still suggests a  challenging year for both bulls and bears.

 

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THE ECONOMY:

The economic calendar  is lighter this week, but hosts key reports on housing and the economy (see below)

For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”

 

TUESDAY

Empire State Mfg. Svy. (8:30) Feb. index dropped sharply to  4.48 vs 12.51 Jan..

Housing Market Ix. (10:00) Index plunged I Feb., down a record of 10 points  to 46 vs.  56 Jan. and 57 Dec., 2013.

WEDNESDAY:

MBA Applications (7:45) Down 6 pct. for Feb. 14 week (y/y is down 17 pct.

ICSC Goldman Store Sales (7:45) Rose 2.1 pct. for Feb. 14 week with help of Val

Housing Starts (8:30) Down 16 pct. in Jan.

Produce Price Ix. (8:30) Revamped to include services and construction. Not comparable with past BLS data. Looks like the new index will be referred to as PPI-FD, FD being “Final Demand” (see mam.econoday.com for more info)

THURSDAY:

Jobless Claims (8:30) Dropped 3,000 to 336,000 for the week ending 2/15

Consumer Price Ix, (8:30)  plus 0.1 pct in Jan, vs. an increase of 0.2 pct Dec..

PMI  Mfg. Ix. (8:59) Big jump in Feb. to 56.7 from 53.7 in Jan.

Philly Fed. Ix. (10:00) Big drop in Feb. to minus 6.3 from plus 9.4 in Jan..

Leading Indicators (10:00) Rose 0.3 pct. in Jan. vs. increase of 0.1 pct. in Dec..

FRIDAY:

Existing Home Sales (10:00)

Fed’s Bullard speaks (1:10 p.m.)

2014

Feb 4    DJIA 15, 372  A Rally !  How Far ?

Feb 5    DJIA  15,445  Slower Economy to Delay Further Fed Taper ?

Feb 6    DJIA  15,440 Will BIG Money Step In or Step Aside ?

Feb 7    DJIA  15,628  Easy Does It – Rally Failure Possible

Feb 10  DJIA  15,794  Critical Week for Bulls

Feb 11  DJIA  15, 801 Market Crossroads – Up ? or Down ?

Feb 12  DJIA  15,994  Bulls in Charge, but……….

Feb 13  DJIA  15,963 Suddenly, Concern for the Economy

Feb 14  DJIA  16,027 Buyers Panicking ?

Feb 18  DJIA 16,154  A Brief Pause or More Upside ?

Feb 19  DJIA 16,130  Can Market Shake Off Ugly Housing Data ?

Feb 20  DJIA 16,040 Winter Slump – Spring Rebound ?

  George  Brooks

“Investor’s first read – an edge before the open”

*Stock Trader’s Almanac

sensiblesleuth@gmail.com

The writer of  Investor’s first read, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk. Brooks may buy or sell stocks referred to herein.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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