Bounce or rally? The market moves up on housing data, oversold technicals, and projections of better than expected economic growth
The headlines this morning attributed today’s stock market climb to good news from the U.S. housing market and an uptick in optimism that politicians will solve the U.S. fiscal cliff.
I wouldn’t forget about the market’s oversold condition and the effect of the short holiday week.
Existing home sales climbed to an annual rate of 4.79 million in October, according to the National Association of Realtors. That’s up from the 4.69 million annual rate in September. Economists surveyed by Briefing.com had projected a 4.7 million annual rate for October.
The percentage of sales accounted for by distressed properties—houses in foreclosure, for example—fell to 24% of all sales in October. That’s a drop from 28% in October 2011. The decline in sales of distressed properties helped push median home prices to an 11.1% increase from October 2011. The rising price of existing homes is good for future sales of new homes since it makes new homes comparatively cheaper when measured against existing homes.
So it’s not surprising that shares of homebuilders and home improvement suppliers led today’s rally. The Standard & Poor’s 500 stock index closed up 1.99% as of 12:30 p.m. Shares of Lennar (LEN) were up 1.88%. PulteGroup (PHM) climbed 1.4%. Shares of Lowe’s (LOW) rose 6.19% and those of Home Depot were up 1.95%.
The news on the fiscal cliff is a lot less robust today consisting of some positive comments from President Barack Obama while he’s on a tour of Thailand, Myanmar, and Cambodia.
I’d throw news from Goldman Sachs and Barclays into the mix since it reinforces the message from the housing numbers and extends it to the economy as a whole. Read more
One more dip should do it.
I’m putting Weyerhaeuser (WY) on my watch list http://jubakpicks.com/watch-list/ today, May 22. I added the stock to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ back on January 13 because in the long-term I think it’s a good way to profit from the eventual recovery of the U.S. housing sector. Since then, the shares have done just about nothing—they’re down 2.7% as of 3 p.m. on May 22. But the stock pays a 3.1% dividend so from a long-term perspective, I’m willing to wait for the turn.
But from the shorter-term 12-18 month perspective of my Jubak’s Picks portfolio I’d sure like to buy closer to the turn in the sector. Today’s numbers on existing home sales say that turn continues to approach—although it’s not quite here yet. If tomorrow’s numbers on new home sales confirm this trend, I’ll be looking to buy on the next dip toward the stock’s 200-day moving average of $18.43. That’s roughly 6% from the stock’s $19.54 price at 3 p.m. on May 22. Not a huge amount, but I’m looking not just to reduce my purchase price but in this 12 to 18 month portfolio to shorten the period between buying and profiting.
The data released this morning show a continued recovery in existing home sales to an annual rate of 4.62 million in April from 4.47 million in March. Economists surveyed by Briefing.com had expected sales to increase to a 4.65 million annual rate.
Although the data was positive, digging down a level raised a worry or two. Read more
Investors looking for a breakout in housing sales are disappointed with the data on home sales and housing starts released today and yesterday. That’s why shares of homebuilders such as Lennar (LEN) are down—by 2.5% in this instance—today. The recent huge rally in stocks in the sector has left them vulnerable to profit taking on anything less than stellar news.
It’s not, however, that the news in the last two days is bad. It does indeed argue for a recovery in the sector. But that recovery isn’t going to be a moon shot but rather a slow and halting recovery. For the patient, a sell off here on disappointment that the recovery isn’t going to be faster would be a chance to get into a sector that indeed does seem to be on the mend. Read more
I’m seeing headlines calling the 11% drop in housing starts announced this morning (May 17) in April from March “surprising,” but I don’t see why. Flooding and tornadoes in the South shut down construction sites in a big swath of states this spring. (April 2011 was the 10th wettest April since the start of records in 1895. The 875 tornadoes reported in the month are a record.) Housing starts in the south fell 23% from March levels.
But whether you’re surprised or not, there’s no doubt that the housing industry continues to struggle two years after the current economic recovery started. Housing starts in April came in at a 523,000 annual rate. That’s 11% below the annualized rate for March and considerably short of the 569,000 rate forecast by economists, according to Bloomberg.
There’s no quick turnaround in the cards either. Read more
There’s early. And then there’s too early.
Early is buying Apple (AAPL) on October 6, 2008 at $98.14 and having to wait until March 2009—six months–before the stock moves up. And up. And up. On March 6, 2009 Apple closed at $85.30. A year later on March 5, 2010 the shares sold for $218.95.
Early is happy.
Too early is buying home builder DR Horton (DHI) in July 2009. You thought long and hard before you moved. You didn’t buy on the first bottom in the summer of 2008 or even in early July 2009. You wanted to see signs the sector had bottomed and started to recover. The end of July rally seemed to promise that and so you bought at $11.17 on July 29, 2009. Now it’s February 18, 2011 and the shares trade at $12.77. The 14% gain doesn’t seem paltry until you remember that it’s your gain over 18 months. And that DH Horton shares still haven’t actually taken off as you’d hoped.
Too early is disappointed.
And it can be even worse—if you decide you can’t wait any longer and just have to sell. Then there’s a good chance that you’ve spent months sitting on dead money before taking a loss.
It’s clear why we buy early—we want to get a bargain price before everyone else piles on. And it’s clear why we buy too early. We don’t want to pass up a bargain—and lose our chance—so we jump in too soon.
Are there any rules that might separate the “early” from the “too early” and let us maximize our investing happiness and minimize our investing disappointments? Read more