Tuesday, August 24, 2010

Dreary housing numbers drag down markets

Stocks were lower all day. The Dow dropped 92, decliners over advancers 4-1 & NAZ fell 26. Banks were weak, taking the Financial Index back to its 12 month low reached in early Jul.


Value 182.43 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change -2.29 (-1.2%)

All the selling hit the high yielding sectors. The MLP index fell 2+ to just under 320 & 15 below its recent high while the the REIT index only fell 1 to 197. Junk bond funds were flat to lower & the € slipped a fraction to $1.26½. Strength in the Treasuries is discussed below.

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

VIX --- 2 weeks

10-Year Treasury Yld Index --- 2 weeks

Oil & gold while lower remain in their sideways trading ranges. Like stocks, their prices were dragged lower by the weak housing numbers signifying sluggish economic growth.

CLV10.NYM...Crude Oil Oct 10...72.27 T...Down 0.83

GCQ10.CMX...Gold Aug 10...1,224.10 ...Down 2.80

**Gold Super Cycle**
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Sales of U.S. Existing Homes Fell in July

Photo: Bloomberg

Sales of previously owned US homes sank more steeply than expected in Jul to their lowest level in 15 years, implying further loss of momentum in the economic recovery. The National Association of Realtors said sales dropped a record 27.2% from Jun to an annual rate of 3.83M units, the lowest since May 1995 & the sales pace for Jun was revised down to a 5.26M. Expectations were for home sales to tumble 12% to a 4.7M from the previously reported 5.37M units in Jun. While the sales decline was not a surprise, the severity was a shock.

Sales of U.S. Existing Homes Fell in July to 3.83 Million Rate

Treasuries rallied again, driving the yield on the 2-year note to a another record low & sending those on 10-year bonds below 2.5% (first time since Mar 2009). Fear is king as risk averse thoughts are back in full force. There will be a $37B auction of 2- year notes at lunchtime. Yesterday the 30-year inflation-indexed bonds drew record demand. The yield on the 10-year bond plunged 10 basis points to 2.50% after touching 2.4668%, yet another 17- month low. The 2-year note yield touched a record low of 0.4542%. Meanwhile the ¥ appreciated 1.8% to 83.60 (to the $), the strongest level in 15 years as investors sought a safe haven refuge.

Treasury Two-Year Yield Drops to Record Low on Plunge in Housing Market

Treasury Securities

U.S. 3-month
U.S. 2-year
U.S. 10-year

On the way up, Dow reached 10K+ last Oct. This is not the way a strong recovery is supposed to manifest itself. Dreary housing data along with businesses not willing to commit to more hiring spells big problems for the markets. Dow 9.8K is the next stop to see if that floor can hold. If it doesn't hold, look out!

Dow Jones Industrials --- 2 weeks

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