Wednesday was big with the Fed Open Market Committee saying “The economic recovery is proceeding” and “the labor market is improving gradually,” and “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”
Interest rates remained unchanged as expected and the big news was the record drop in new home sales, declining -33% to 300,000 and the fewest new home sales since 1963.
On the upside of the housing market, the home builders’ index climbed today in contrast to the new home sales reports.
On a technical basis, markets are vastly oversold and sentiment is bearish reflecting the current mode and so if we’re going to get a bounce, it should be imminent.
Our signals remain on a “buy” signal but with less commitment as each down day passes.
Typically when we switch to “Green Flag” we will see the response come within a week, although remembering back to the end of March when we went to “Red Flag” the market climbed for nearly a month before reversing down sharply in the May/June correction that we were able to fully exploit.
So I would expect to see some upside here or it will soon be time to fade this position a little and reduce risk in the event this forecast rally doesn’t materialize.