Wednesday, January 26, 2011


Nothing like a bad housing report to get the markets motivated.
“Though new home sales rose by more than forecasts in December, the increase was off a very low reading in November and was primarily due to a jump in sales in one region. To put the increase in the West into perspective, unadjusted nonannualized new home sales in the West rose to 7,000 from 4,000—once annualized and seasonally adjusted, these sales are reported to have risen to 110,000 in December from 64,000 in November. While it is encouraging that sales continue to move into better alignment with home supply, we characterize new home sales as still bouncing around at low levels (December’s reading compares to a peak of 1.4 million in July 2005) and we do not expect the housing sector to be either a significant driver nor a drag on economic growth in 2011.”

As addition collateral, the EURO (which I am reasonably short) has hit major resistance around the 1.3730 area. All in all the currencies, transports and some index action portray a very dangerous situation. Moreover, the rubberband has been stretched by another factor - the overshoot of our inverse head and shoulders pattern targets on the daily charts. These targets were in the range of 1240 to 1255ish for the SP500. We have overshot by more than 50 points. This creates the prospect of an overshoot in the reverse direction when a correction occurs of roughly the same amount. So, we may be in for another flash crash type thing that everyone can blame on some fat fingered button pusher who types 1 billion instead of 1 million into a special and proprietary order entry system (especially designed for reporting by CNBS media spokes people) that has no security and/or validation that would validate and verify that kind of data.
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