As has been the norm, the home sale decline was greater than economists expected. However, that is simply a consequence of artificially trying to stimulate housing markets in this case via the now expired tax credit program. Housing will now have to stand on its own two legs, unless Stimulus 2.0 is being created.
Expect to see similar results with upcoming reports in those areas of the economy that received a healthy dose of Stimulus 1.0.
The good news was that the markets did not close at their intra-day lows as the chart shows, although the Dow barely hung on to the psychologically important 10k level—at least for the time being.
Our international Trend Tracking Index (TTI) had peeked into bear market territory during the past few trading days. Today, it clearly pierced its long-term trend line to the downside, thereby generating a Sell signal. The effective date for tracking will be today, August 25, 2010. This brings to an end a rather short international buy cycle (7/26/10-8/25/10), which is actually the shortest in past 21 years of its existence.
As of today the TTIs stand as follows:
Domestic TTI: +2.05%
International TTI: -1.39%
Again, bonds were the beneficiary of this downturn. It remains to be seen if the market, as measured by the S&P; 500, will find support at the 1,040 level and shoot back up to the 1,100 resistance point. My guess is that any further negative news will have us testing 1,000 before we will see 1,100 again.
Track and execute your sell stops, if you still own any equity positions.