On Tuesday, existing home sales data came in much below the expectations of top economists. Yesterday, new homes sales data came in much below the expectations of top economists. Yet, a very interesting thing happened on Tuesday amidst the very weak tape. Among the many strong homebuilders, LEN had an ‘outside day.’ For those not familiar with technical analysis, this is when the high of the day is higher than the previous day’s high and the low of the day is lower than the previous day’s low. This is even more notable when it occurs at the top or bottom of a range. It is even *more* notable when it happens on huge volume. As it turns out, LEN’s outside low on Tuesday was the 2010 calendar low and the volume on the reversal was the largest in months. Yesterday, TOL posted better-than-expected earnings with the stock gaining almost 6% on the session. Basically, things have stabilized. Based on data from Tuesday’s existing homes report, sales collapsed, but prices held. Thus, it’s plausible for prices to stabilize a bit and housing demand to fall a bit simply because there is a smaller market of sellers AND buyers. And yes, I know how ridiculous I am sounding. So let me clarify on the other side- if at the age of 15, I ate bacon, cheese, and mayonnaise sandwiches as my sole diet everyday for 15 years along with smoking three packs of cigarettes a day, it’s a good bet that at age 30, I will be in worse shape than at age 15. Let’s say I keep the same G-d awful diet/smoking regimen…but I also do three hours of intense exercise a day for five years, it’s a good bet that by age 35, I probably would not have worsened too much health-wise. But by age 50, I’ll probably have coronary disease anyway. The markets have been held up largely by government credits- all artificial. Indeed, the only people seemingly truly taking advantage of low rates are the refinancers. It’s also true that the ratio of unsold homes to sales is at its highest level in over 10 years meaning prices will likely resume their decline in time. But if a 4 bedroom 3 bathroom condo in Florida depreciated from $500,000 to say $225,000 (ignoring BP here), well, there’s a floor where buyers will come in. I don’t pretend to know where that floor is though and again, I feel that prices will resume their declines eventually. But I think it’s more of a thing where prices go down more slowly than before…but don’t bounce for years. Now, that I’ve given a discourse as to the good and to the bad, let’s revisit the fact that the housing stocks ignored the gloom of the last couple of days. It is this type of action that one must seek in individual stocks and markets when determining reversals. As you day trade, realize that concepts such as buying thru unchanged when things look the bleakest and vice versa can often result in significant trading gains particularly in sectors such as housing on an immediate-term basis intra-day.
Markets were mixed in Asia overnight with Tokyo ahead 0.7% but Hong Kong down 0.1%. The trend shifted in Europe with markets nicely ahead by ½% to ¾% across the board. Oil is up 1%, gold flat, the dollar is flat, and bonds are up slightly. Jobless claims data came in much better than expected. Futures are nicely higher off of the data. Look for the bounce to hold today ahead of the big Bernanke speech in slow trade barring a major event out of Europe. Focus on the M&A stocks, the fertilizers, big cap techs, and relative weakness plays.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
SMTC- decent earnings
VPRT- closed near a high on rumors of a buyout by MSFT
JAS- good earnings
PPO, LAZ- mentioned on “Mad Money” last night
AMZN- closed near a high
AAPL- closed near a high
NFLX- closed near a high
MNTA- a U.S. District judge refused to issue a preliminary injunction by SNY to halt MNTA’s generic form of Lovenox
GOK- received a $110 million contract from PEMEX
Bad-The following stocks have bad news and/or a weak technical pattern
GES- terrible earnings
JDSU- poor earnings
TIVO- poor earnings
RUE- poor earnings
CEPH- CEO took a medical leave of absence
Earnings:
THURS AUG 26 BEFORE
APWR PDCO RGS
SFL
THURS AUG 26 AFTER
ARUN IRF JCG
NOVL OVTI
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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