Housing Part II

by Larry Levin

Before the second shockingly bad housing report was released today, there was another poor report: durable goods.

Although the durable goods data showed a very modest increase of +0.3%, it was far below what the so-called experts - economists - said it would be. Once again, these experts couldn't be more inaccurate as they predicted a +3.0% reading. Wrong again boys!

JP Morgan said the following...The July durable goods report was a major disappointment and raises the risk that third quarter GDP growth prints below 1%. Shipments of core capital goods (ex-aircraft and defense) fell 1.5%, the most since April 2009, and orders for core capital goods plunged 8.0%, the most since January 2009. This category is the most important element of the report as it is the best gauge of business capital spending and it feeds into the calculation of GDP. Other aspects of the report weren't quite as bad: total orders were up 0.3%, which was entirely accounted for by a 76% jump in bookings of civilian aircraft. Total shipments rose a decent 2.2% in July, thanks mostly to an increase in shipments of semiconductors and other electronic intermediate inputs.

Core capital goods tend to be seasonally weak the first month of the quarter, due to excess seasonality in the machinery category. However, even after accounting for that the capital spending implications still look atrocious. In particular, new orders for machinery declined 15%, the most on record going back to 1992. There was a modest upward revision to June core capital goods shipments, which implies that second quarter GDP growth is now tracking 1.2% instead of 1.1%. However, even with that revision core capital goods shipments are tracking a 2% annual rate of decline early in Q3, down sharply from a +18% pace in Q2 and +12% rate in Q1. The downshift in the pace of capital spending is particularly worrying as this was the strongest, most reliable sector of the economy over the past year.

Inventories at manufacturers of durable goods increased $1.8 billion in July, well below the $3.3 billion average increase in stocks over the prior three months--another factor which lends downside risk to Q3 GDP growth.

But the always wrong Wall Street economists weren't done yet, they missed another one. Economists expected new home sales to be at 330,000, but came in at the WORST ever recorded level of just 276,000. Moreover, the deflation monster took another bite out of assets - homes - as the home price index fell -0.3%. Of course, the economists missed that as well, telling clients to expect a gain 0.1%.

The Census Bureau said the following...

Sales of new single-family houses in July 2010 were at a seasonally adjusted annual rate of 276,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.4 percent (±10.8%) below the revised June rate of 315,000 and is 32.4 percent (±8.7%) below the July 2009 estimate of 408,000.

The median sales price of new houses sold in July 2010 was $204,000; the average sales price was $235,300. The seasonally adjusted estimate of new houses for sale at the end of July was 210,000. This represents a supply of 9.1 months at the current sales rate.

Given this news, the manic-depressive market rallied into the close. Yes, it closed HIGHER. Additionally, housing stocks SKYROCKETED today.

Oh sure, there's no manipulation going on here whatsoever.


Previous Day's Trading Room Results:

Trade Date: 8/25/10

E-Mini S&P Trades*
(before fees and commissions):


1) No "Secrets" trades filled today.

2) Algorithm positions (9)

3) “Reading the Tape” positions (3)combined Secret’s, Algo, & “Reading the Tape” total… +5.75



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!