Charts I’m Watching: Sep 24, 2014

SPX landed on an .886 Fib retrace at the close yesterday.  Given that TPTB don’t want a 4-day decline on their hands, we’re likely to see a bounce today.  But, the medium-term target of the SMA50 (1976) remains if the USDJPY-driven ramp job can’t turn this ship around.

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UPDATE:  10:45 AM

Stronger than expected (seasonally adjusted) housing sales turned the bears back for now. But, SPX hasn’t yet managed to break out of the falling red channel.  If it doesn’t, the SMA50 is still down there at around 11:30ish.

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Not that you’ll ever hear this on MSM, but the Commerce Department’s new home sales are based on permits expected to be issued based on deposits taken or sales agreement signed and is generated by surveying a sample of builders. It doesn’t represent permits issued, financing obtained or transactions closed.  Further, there is a huge margin of error (16.3%) on the headline 18% number reported.  So, the actual number could just as easily be 1.7%.  Per the Commerce Department.

The survey is primarily based on a sample of houses selected from building permits. Since a “sale” is defined as a deposit taken or sales agreement signed, this can occur prior to a permit being issued. An estimate of these prior sales is included in the sales figure. On average, the preliminary seasonally adjusted estimate of total sales is revised about 4 percent.

The non-annualized, non-seasonally adjusted estimate based on survey results was 41,000 units versus July’s 38,000 — a 7.8% increase over July, but with a margin of error that makes that figure meaningless.  The unadjusted year to date through August figures were up 2% versus 2013, but with a 3.7% margin of error. Note that even the Commerce Department reports an average revision of 4%.

In sum, garbage-in, garbage-out.  When you make a small error, and then annualize it, the results can look sensational.  Last point on this: the median price continues to drop.  Since May, when prices peaked out at $285,600, this is the third lower median price in a row.  This is not exactly a sign of a recovering market.

Those piling in on this dip should exercise caution.  I still show downside potential at around 1:15-1:30pm.  Keep an eye on the 10-yr notes, which just tested the SMA100 again.  I see yields dipping below 2.5% either today or tomorrow.


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UPDATE:  2:00 PM

Algo’s are firmly in control again, with VIX ticking lower and USDJPY higher.  The target appears to be a backtest of the SMA10 or SMA20 at 1996 — 1998.


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