Had it not been for Thursday, the market would have pulled out a gain for the week…which would have been the third in a row. Problem is, Thursday happened. Though we saw a modest rebound effort on Friday, it just wasn't enough.
Still, one bad week doesn't necessarily pull the rug out from underneath a rally, and the market has managed (so far) to hold the line above a key level. Will that be enough to reignite the uptrend that started three weeks ago? We'll slice and dice that question in a moment, right after examining last week's and this week's economic numbers.
Not a lot of data for last week, and most of the reported data wasn't very important. We did get a pretty good feel for what's going on in the real estate/construction market though, and whaddya know…it's not too bad.
First and foremost, the NAHB Housing Market Index ticked a hair higher for June, from 28 to 29. It's not a show stopping piece of data though. Tuesday's starts and permits data is a pretty big deal though, and this is where things get tricky.
The good news is, building permits (issued) soared from 723K to 780K. The bad news is, actually housing starts fell from 744K to 708K. The net result is a wash. That said, one month's data just doesn't paint the whole picture. A picture, however, does paint a whole picture, which is what we've got below.
Our chart of the housing starts and issued permits reflects the numbers you heard Tuesday (and the ones you hear every month), which are the seasonally-adjusted, annualized numbers. There are pros and cons to the method, but no matter how it's calculated, one month just doesn't tell you anything about the trend in motion. Our chart does, and simply put, the trend is measurably improving.
Seasonally Adjusted Permits (multi & single family) and Starts (multi & single family)
Looks pretty good, right? The trouble is, that annualization and seasonal adjustment can sometimes obscure a trend. So, just to make sure there are no stumbling blocks being masked by the math, we also want to look at the actual numbers - the raw monthly data - that you never hear about unless you immerse yourself in the Census Bureau's database. We know we'll see a surge in these numbers every year, as construction is heaviest in spring and summer. That's ok. We just want to see those humps and troughs getting gradually higher. Take a look:
Non-Seasonally Adjusted Permits (multi & single family) and Starts (multi & single family)
Bottom line? The naysayers can grumble all they want, but it's pretty clear the construction market (and by extension, the whole real estate market) is on the mend. We're still years away from 2005's peak levels, but we're pointed in the right direction.
The FHFA Housing Price Index rounded the semi-optimistic picture out on Thursday with a 0.8% improvement for April, which follows a 1.6% improvement for March.
The only other numbers of real interest last week were the new and continuing unemployment claims levels, and they were both strangely even with the prior week's figure. There were 387K new unemployment claims last week, and 3.299 million ongoing claims. Both have been stuck around those levels for a while.
The coming week is pretty loaded, and will continue the dissection of the real estate market. That dissection will kick off on Monday, with last month's new home sales. We'll hear May's pending home sales on Wednesday. The pros are looking for an increase of 0.5%, but nothing could be any worse than the previous month's 5.5% dip.
It's also going to be a big week for consumer confidence. The Conference Board's consumer confidence score comes out on Tuesday, and is expected to slide a bit lower, from 64.9 to 64.0. The Michigan Sentiment Index's final score for June will be unveiled on Friday, and will most likely be 74.1.
Now, onto the market-related stuff.
Just to set the tone, more than anything else right now, the market's on the fence. It's going to have to shake itself out of a narrow trading range that's framed pretty well above and below. The bulls may have a momentum edge, but the ceiling is looking just as tough as the floor is now. With that in mind…
Last week's S&P 500 Index (SPX) (SPY) high around 1363.46 pretty much confirms one of the items the bulls should have been worried about - resistance at the 100-day moving average line (gray). The upper 20-day Bollinger band (thin, blue) has also chimed in as resistance around there. It's going to be a tough hurdle to cross, as suggested by the fact that is ultimately began Thursday's big setback.
On the flipside, it looks like the bulls have at least drawn a line in the sand at 1320.5, where the 20-day moving average line is (thick, blue). That line was ultimately the launchpad for the surge a couple of weeks ago, and managed to revive the buying effort on Friday just by merely approaching it.
S&P 500 & VIX - Daily
What's compelling here - and a little surprising - is how the CBOE Volatility Index's (VIX) (VXX) action is jiving with the bigger bullish effort. In fact, had it not been for the VIX's new trend back under its key moving average lines and then its continued pressure on the lower Bollinger band lines, we might not be able to say the VIX was clearly moving lower. There it is though, in black and white. (Well, technically on red, green, pink, and blue, but you get the idea.)
Still, the S&P 500 is trapped in a range, and until it breaks out of it, there's no meaningful degree of certainty.
So what does that mean for traders? It may not be a riveting call, but something the best trade you can make is choosing to not place one at all - or tighten up holding periods and narrow the number of open positions. The market's (DIA) (QQQ) (IWM) at a crossroads here. Though our expectation is a bullish - ultimately - based on the VIX and the overall market momentum, the S&P 500 has something to prove to us at 1359.
Check back next week, as we should have some real clarity by then.