The Expected Housing Recovery Faces a Brick Wall

January 31, 2013 Comments off

Re-emergent house flippers are set to flop.

By Elliott Wave International

In 2005, a mania for residential real estate reached such a fever pitch that a series of cable television shows became entirely devoted to house “flipping.”

Flipping involves buying a worse-for-wear house, making the minimum repairs necessary, then turning right around and selling it – ideally for a fast and handsome profit.

Two years before the housing bust became painfully obvious to U.S. homeowners, EWI’s publications warned subscribers that the housing market had reached extremes and was about to bust.

There’s no mistaking it now: Extreme psychology … has taken up residence in real estate. …

A significant percentage of the population does not know that a return to earth is implicit in [real estate’s] pole-vault to record heights.

The Elliott Wave Financial Forecast, July 2005

That issue published around the time the S&P Supercomposite Homebuilding Index peaked.

The index bottomed in late 2008. Since then, the index moved sideways into late 2011 and in 2012 staged a modest rebound. Take a look at this chart from the November Financial Forecast (wave labels removed):

The outburst of over-the-top enthusiasm for home buying turned out to be a great sell signal. The Homebuilding Index lost more than 85% over the next 40 months. The rise from its November 2008 low appears to be a … countertrend rally. … Near-term excitement has definitely risen.

Financial Forecast, November 2012

As you might expect, the rebound is accompanied by a rise in expectations for a real estate recovery.

The head of the world’s largest asset management firm sees more than just higher home prices ahead; he sees a return to 2005 levels.

As the inventory of unsold U.S. homes drops to a more manageable level, the U.S. housing industry is inching closer to a complete rebound, [said] BlackRock CEO.

CNBC, Oct. 4

By looking at the chart, you can see how much farther prices have to climb before achieving a “complete rebound.”

What’s more, home flippers have returned.

Property Flippers Are Back as Housing’s Middle Men

Yahoo Finance, Oct. 15

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This article was syndicated by Elliott Wave International and was originally published under the headline The Expected Housing Recovery Faces a Brick Wall. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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Stock Market Update for January 24, 2013

January 24, 2013 Comments off

Stocks have moved mostly higher in early trading on Thursday, although a sharp drop by shares of Apple (AAPL) is weighing on the tech sector. The major averages have turned mixed, with the tech-heavy Nasdaq stuck in the red.

The Nasdaq has recently climbed well off its low for the young session but remains in negative territory. While the Nasdaq is down 10.24 points or 0.3 percent at 3,143.42, the Dow is up 55.31 points or 0.4 percent at 13,834.64 and the S&P 500 is up 3.41 points or 0.2 percent at 1,498.22.

market previewThe mixed performance by the major averages comes as shares of Apple have tumbled by 10 percent after the iPad and iPhone maker reported quarterly results that disappointed investors.

After the close of trading on Wednesday, Apple reported better than expected first quarter earnings but on weaker than expected sales. The company also reported iPhone sales that missed expectations and provided disappointing second quarter revenue guidance.

While the drop by Apple is weighing on the Nasdaq, other sectors have benefited from the release of a report from the Labor Department showing an unexpected drop in jobless claims.

The report showed that initial jobless claims dipped to 330,000 in the week ended January 19th, a decrease of 5,000 from the previous week’s unrevised figure of 335,000. The drop surprised economists, who had expected jobless claims to climb to 355,000.

With the unexpected decrease, jobless claims fell to their lowest level since hitting 318,000 in the week ended January 19, 2008.

While the Labor Department said seasonal distortions are likely still in effect, Jennifer Lee, senior economist at BMO Capital, said the news on the job front is encouraging “even when you remove all of the noise.”

Trucking stocks have shown a substantial move to the upside, driving the Dow Jones Trucking Index up by 2.9 percent. With the gain, the index has reached its best intraday level in well over a year.

Early strength is also visible among internet stocks, with Netflix (NFLX) leading the way higher after reporting an unexpected fourth quarter profit. Shares of Netflix have surged up by 42.2 percent.

Retail, healthcare provider, and housing stocks are also seeing early strength, while notable weakness is visible among gold stocks.

Categories: Investing

Stock Market Update for 12/20/2012

December 20, 2012 Comments off

Stocks Seeing Modest Weakness In Early Trading

After coming under pressure over the course of the previous session, stocks are seeing some further downside in early trading on Thursday. The major averages have dipped into negative territory, although selling pressure remains subdued.

The major averages are currently posting modest losses, near their lows for the young session. The Dow is down 16.65 points or 0.1 percent at 13,235.32, the Nasdaq is down 8.70 points or 0.3 percent at 3,035.66 and the S&P 500 is down 1.63 points or 0.1 percent at 1,434.18.

stock market updateThe modest weakness on Wall Street comes as traders continue to keep a close eye on developments in Washington, with uncertainty about the fiscal cliff creeping back into the markets following recent comments by President Barack Obama and House Speaker John Boehner.

Boehner has indicated that he will bring his “Plan B” legislation to the floor of the House for a vote despite a veto threat from the White House.

The “Plan B” legislation would extend the Bush-era tax cuts for people making up to $1 million, but Democrats claim it would raise taxes on millions of working families.

Boehner has argued that the president would be responsible for the largest tax increase in American history if he can’t persuade Senate Democrats to approve the legislation.

As a result of the focus on the budget negotiations, traders have largely shrugged off the latest batch of U.S. economic data, including a report from the Commerce Department showing stronger than expected third quarter GDP growth.

The Commerce Department’s final estimate showed that GDP increased at an annual rate of 3.1 percent in the third quarter compared to the previous estimate of 2.7 percent growth. Economists had expected a more modest upward revision to 2.8 percent.

A separate report from the Labor Department said initial jobless claims moved back to the upside in the week ended December 15th after unexpectedly falling to a two-month low in the previous week

Gold stocks have shown a notable move to the downside in early trading, dragging the NYSE Arca Gold Bugs Index down by 1.1 percent. The weakness among gold stocks comes amid a sharp drop by the price of the precious metal, with gold for February delivery falling $18.30 to $1,649.40 an ounce.

Semiconductor and networking stocks are also seeing some early weakness, while most of the major sectors are showing only modest moves.