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Market Hopes Still Alive!

  • Written by Syndicated Publisher No Comments Comments
    June 20, 2012

    The market optimism two weeks ago, when Spain’s banks received the hoped-for bailout, lasted less than a day before it was realized that Spain’s government debt was an even more serious problem than its banks’ lack of capital, and the yield on Spain’s government bonds shot up.

    But markets soon recovered as hopes pushed Spain’s problems aside and focused on Sunday’s election in Greece.

    And when the Greek election turned out to be a positive, with pro-euro parties winning, potentially kicking Greece’s problem down the road, the market’s optimism again lasted less than a day. Markets in Europe gave up most of their initial gains yesterday, and the U.S. market closed mixed, the Dow down on the day. Once again the problem was that focus was again immediately shifted to Spain, when the yield on its 10-year bonds spiked to well above the danger zone of 7.0% that marked the level where bailouts of Greece and Portugal became mandatory.

    But market hopes remain alive, markets still positive, as European hopes move now to the G-20 meeting now underway in Mexico that will hopefully produce a coordinated global economic stimulus plan.

    And negative economic reports continue to produce contrary reactions. This morning it was reported that Germany’s Investor Confidence Index plunged a huge 27.7 points in June, from +10.8 in May to –16.9 in June, versus the consensus forecast of a reading of +2.8.

    European markets moved up on the report, apparently on hopes that the report will put still more pressure on the G-20 to act decisively.

    At the same time hope has a backstop prospect gaining some attention, that if the G-20 doesn’t act, maybe the rescue will come from the EU (European Union) meeting June 28-29. 

    Hope also got a lift from Spain announcing that it will delay a key audit of its banks until September. It doesn’t change anything regarding the banks’ serious problems but at least keeps the details hidden until September.

    In the U.K., disappointed that the Bank of England left interest rates unchanged at its last meeting, hopes are now that the BOE will provide quantitative easing at its July 5 meeting.

    In India, hope took a hit Sunday night (Monday in India) when India’s central bank ignored the expectations of analysts and markets, and did not provide another rate cut to help re-stimulate India’s slowing economy. The Indian stock market plunged 1.4% Sunday night even as the rest of Asia was rallying strongly in reaction to the Greek election. But it bounced back 0.9% last night, even though Fitch Ratings cut its outlook for India to negative from stable. 

    And of course in the U.S., economic reports continue to indicate the economic slowdown is worsening, which has hopes high that at its two-day FOMC meeting that begins today, the Fed will decide to provide not only an extension of its ‘Operation Twist’, due to expire at the end of the month, but also some form of QE3 (quantitative easing).

    So government officials world-wide seem to have the fate of global markets in their hands this week.

    Markets are comfortable with that thought, but not quite as enthusiastic as last week and the week before, now that two hurdles have been cleared without solving their related problems (the bailout of Spain’s banks, and the Greek election).

    Are U.S. Home-Builders really a buy?

    Home-builder stocks spiked up 1.8% yesterday in a flat market, after the National Association of Home Builders released its Housing Market Index, which measures the confidence of the nation’s home-builders.

    Understandably builder confidence plunged after the bursting of the housing bubble in 2006, and has been dragging along the bottom near the worst readings since the beginning of the record keeping.

    With the end of the ‘Great Recession in 2009 confidence began to recover, and continues to slowly improve from that extreme low level.

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    And the home-builder stocks have also been recovering since early 2009.

    But the NAHB report yesterday was that its Confidence Index came in at 29 in June, which means that only 29% of the builders polled are positive in their outlook for the next six months. That’s not exactly a forecast of good times ahead, 71% still pessimistic.

    In another ‘Don’t make me laugh any harder moment’, the NAHB was only able to call it an increase by first revising the previous report for May down from 29 to 28. That allowed them to report the level for June, at 29, as being up from 28 in May, rather then flat.

    It would be funnier if that little manipulation was not reported so exuberantly by the media, which can obviously affect investors as well as traders.

    The headlines for yesterday’s report were “Home-Builder Confidence Hits 5-Year High!”

    And investors were apparently tempted by the headlines, since the home-builder stocks spiked up 1.8% in a flat market yesterday.

    I hope it works out for them. But looking at the charts first, it seems to me that a lot of good news for the home-builder stocks was already factored into their prices. They rallied 65% off their October low, and in the process the technical indicators became overbought, and have rolled over to sell signals from their overbought zones, and the stocks are potentially headed back down.

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    Subscribers to Street Smart Report: In addition to the charts and signals in the premium content area of today’s blog, the Mid-Week in-depth signals report on the U.S. Market will be in the subscribers’ area of the Street Smart Report website tomorrow. And please also stay tuned to the hotline!

    To read my weekend newspaper column ‘Markets and Governments Are Rolling the Dice!’ click here.

    Images: Flickr (licence attribution)

    About The Author

    Sy Harding publishes the financial website www.StreetSmartReport.com and a free daily Internet blog at www.SyHardingblog.com. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

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