Home Prices Fall But Consumer Confidence Tops Estimates

Tuesday, December 27, 2011
Stock Market Commentary:

Stocks opened the shortened holiday week higher after the latest round of U.S. consumer sentiment topped estimates. From our point of view, Monday marked Day 5 of the current rally attempt which means the window is now open for a new follow-through day to emerge [as long as Tuesday’s (12/20/11) lows are not breached]. It was encouraging to see the benchmark S&P 500 index open higher after positively reversing last week.

Home Prices Fall But Consumer Confidence Tops Estimates

On Monday, all markets in the U.S. were closed in observance of Christmas. Stocks opened higher on Tuesday which marks the beginning of one of the strongest week’s of any year. Historically, the U.S. stock market tends to rally during the last week of the year (between Christmas and New Years) and we will see if this year is an exception or matches the historical precedent. Stocks were quiet on Tuesday after investors digested the latest round of mixed economic data. The Case-Shiller Home Price index fell for the second straight month in October across much of the nation. Elsewhere, the Conference Board said its consumer confidence index rose to 64.5 in December from a downwardly revised 55.2 in November. This easily topped the Street”s estimate of 58.3 and since the consumer makes up approximately 2/3 of the U.S. economy, stronger consumer confidence bodes well for the economy.

Market Outlook- In A Correction

The major averages are back in positive territory for the year which is a healthy sign. We find it very disconcerting to see other (leading) risk assets flirt with fresh 2011 lows in recent weeks. China’s Shanghai Composite (normally a leading risk on/off indicator) has fallen below its October low and hit a new 2.5 year low. The euro, which is strongly correlated to U.S. stocks and other risk assets also took out its October low on Tuesday (12/13) which is not ideal. Meanwhile, Gold sliced below its longer term 200 DMA line on on Wednesday (12/14) for the first time since August 2008 (1-month before Lehman failed) and remains below that critical level. Other risk assets such as Oil, Silver, Copper, etc are also under pressure which suggests the global risk off trade is getting stronger.  As an easy reference point, if the benchmark S&P 500 would simply fall to its Oct low, that would be 1074! Sometimes, caution is king.

What we have seen from the October 4, 2011 low was simply an over sold bounce into a logical area of resistance (200 DMA line). Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!