Monday, July 26, 2010

Markets rise on improved new home sales

Stocks are higher on what was viewed as a favorable new home sales report. Dow gained 61, advancers ahead of decliner 5-2 & NAZ was up 17. Banks stocks were bid up, but the Financial Index has been range-bound (& in the lower region of the range) for almost one year.


Value 197.58 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change 1.64 (0.8%)

The MLP index is still on fire, up 50 (almost 18%) YTD following its best year ever. Today the index shot up another 2 to 335, just 8 shy of setting a new record! The REIT index rose 3 to 205. Junk bond funds were higher. Despite the market gains, the VIX, volatility index, rose a fraction in the 23s remaining near a 3 month low level. The yield on the 10-year Treasury rose more than 1 basis point to a 3.01% yield, remaining in very low territory. The € was strong, up to $1.29½ to its highest level in 3 months as fears about the bank stress tests released on Fri are receding.

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 2 weeks

30-Year Treasury Yld Index --- 2 weeks

Oil has a modest gain after the tropical storm & its bullish implications fade away. Gold is doing little.

CLU10.NYMCrude Oil ...Sep 10...79.22 ...Up 0.24

GCN10.CMX...Gold Jul 10...1,188.20 ...Up 0.50

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Sales of new homes jumped 24% in Jun to an annual rate of 330K, but it was the 2nd-weakest month on record. The lackluster economy has made potential buyers skittish about shopping for homes. May's number was revised downward to a rate of 267K, the slowest pace on records dating back to 1963. Sales for Apr & Mar were also revised downward. Despite the month's increase, sales are still down 72% from their peak annual rate of 1.39M in Jul 2005. New homes sales made up about 7% of the housing market last year, down from 15% before the bust. Weak sales mean fewer jobs in the construction industry, which normally power economic recoveries. Builders have sharply scaled back construction in the face of a severe housing market bust. The number of new homes up for sale in Mar fell 1.4% to 210K, the lowest level in nearly 42 years. The median sales price in Jun was $213K, down 0.6% from a year earlier & down 1.4% from May. Housing stats remain bleak.

June Sales of U.S. New Homes Climb More Than Forecast

New homes sales - 1 year

One-Year Chart for Total sold (NHSLTOT:IND)

Institutions pushed equities up to 68% of holdings in Jul, the highest level in 15 months, from 63% in the prior month. The ratio of bullish to bearish respondents fell to 0.68, the lowest level since July 2009 (based on a 4-week average). Meanwhile money managers are investing more in stocks than at any time since the start of the bull market. The last time money managers & individuals were this far apart was in Mar 2009, before the popular stock averages began their big rallies. Some suggest it may signal (low levels in the chart below) another buying opportunity based on the notion that the retail guy has gotten it wrong more often than right.

Stock Buying Hits Bull Market Record at Mutual Funds

Bulls to Bears ratio - 1 year

One-Year Chart for aaii bulls to bear (.AAIIB2B:IND)

Stocks began a quiet summer week higher. But the new homes sales report is less bullish than some are making it out to be. BP (BP) is getting a new chief, not sure how much that will help. While stocks are up, MLPs seem to be headed for heaven. The index is so close to setting a record, it might as well shoot up & get it over with. However the disconnect between the performance of the MLP index & popular averages will have to come to an end eventually. And yields on the Treasuries at these low levels is one more major worry for stock markets.

Dow Jones Industrials --- 2 weeks

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