Post by brosin on Aug 25, 2010 22:00:15 GMT -5
Courtesy of Brian Shannon at Alphatrends
Caldaro:
(more to say today short term than normal)
Today's gap down opening and follow through took the SPX to the 1041 pivot. This was an important support pivot during the last downtrend - May and early June lows. This pivot is also likely "make or break" time for this uptrend. The current two week decline has now pulled back 89 points (SPX 1129-1040), declining 7.9%. Since the bull market began in Mar09 the largest percentage pullback during an uptrend was 6.5% in Oct/Nov 09. Based on this statistic alone the market is already in a downtrend. If the OEW 1041 pivot fails to hold support, going forward, then Primary wave II is likely extending. The count posted on the DOW charts: Major A Jly10, Major B Aug10, and Major C underway would then be the preferred count.
Currently the decline can be counted as an ABC zigzag into todays SPX 1040 low, with both waves A and C equalling 60 points. There is another positive RSI divergence on the hourly charts and an oversold condition on the daily charts. If this market can clear the 1058 pivot it could get something going to the upside again. This pivot is currently acting as resisitance. If the market is ending this pullback now a sharp rally should follow to confirm. If not, we may be in for a choppy downsloping decline into Oct10 and the SPX 944 pivot.
Cobra:
In 08/24 Market Recap, I said that around 08/26(+-) could be a pivot date, if SPX pullback to 1040 around this pivot date, then there’s a chance that a Head and Shoulders Bottom could be in the forming. This was exactly what happened today. The SPX got support around 1040 and rebounded to form a bullish reversal bar, looks not bad. Well, does this mean that the market has bottomed? All I can say are maybe, could be, probably, possibly. Need see a follow through tomorrow for sure.
The bottom line, the short-term trend is down, well, barely, and I hold a tiny little short position overnight with very large stop loss. Has the market bottomed? Well, bulls need clear the neckline and MA(20) pink line above to claim the victory, right now, officially, still not confirmed yet.
Bespoke:
-Housing: The Lost Half Decade
While it has been a 'lost decade' for equities, housing isn't too far behind. The sector is now in the midst of a lost half decade and counting. Following up on yesterday's downright awful release of existing home sales, today's new home sales report for July came in at a seasonally adjusted annualized rate of just 276K, which is a record low dating back to 1963. Since peaking in July 2005, new home sales have now declined by more than 80% in five years. As seen in the chart, while the slope of the rally in housing was steep, the decline has been even steeper.
What makes the record low reading in new home sales even more notable is that we're at record lows even without adjusting for the growth in population. So even though the size of the US population has increased by 64% since 1963, new home sales are still at record lows. In the chart below, we have adjusted the new homes sales data by the size of the population. Here, the current levels are even more depressed. As of July 2010, new home sales totalled 0.09% of the US population. This is more than two-thirds below the historical average of 0.28%.
S&P 1500 Short Interest: Unchanged Since April
With the S&P 500 down more than 13% since its peak in April, one would think that short interest would have surged as investors pile on to the negative sentiment in the markets. A look at recent short interest figures, however, shows that just as there is little conviction in the bull camp, bears are just as apathetic. Since the market peaked back in April, short interest as a percentage of float for the S&P 1500 has barely budged.
Ritholtz:
Comical given our Twitter thread in the Saloon today:
50 Best Websites 2010: StockTwits
Congratulations to Howard Lindzon on StockTwits making Time magazine’s 50 Best Websites for 2010.
Here’s Time:
“StockTwits is a by-product of all that financial chatter on Twitter. Think of the website as a social ticker — instead of tracking stock movements, it tracks the ongoing discussion around each stock. Find someone whose advice you trust, add them to a watch list and get a real-time stream of investing insight. The unvarnished info can be a refreshing switch from all those makeup-encrusted anchors on financial-news shows.”
Congrats !
A Brief History of the Mortgage Interest Deduction
I keep finding very poor or misleading reporting on Housing in the US. Some of this is sloppy or lazy reportage; others reflect reporters being suckered by Think Tank spin and political narratives.
Lately, the area seems to be misreported the most is the coverage of the Mortgage Interest Deduction. The misleading impression created by some reports is that this deduction is the result of a specific policy designed to encourage home ownership. That is a false narrative, belied by history of the Federal Income tax.
Let’s take a quick look at facts so that people understand it better.
The first Federal Income tax in the US was passed in 1894, and subsequently struck down by the Supreme Court. This led to the passage of the Sixteenth Amendment (ratified in 1913), that empowered Congress “to lay and collect taxes on incomes, from whatever source derived.”
With this new power, Congress imposed the first taxes. Rates started at 1%, and rose to a whopping 7% for taxpayers with income in excess of $500,000. This applied to relatively few people, with less than 1% of the US population paying any income tax.
As an offset for the taxes, any interest paid (for any reason) was deducted. These were considered business expenses. Indeed, taxes on rents from real estate was a large revenue source. The financing costs of purchasing such rent producing property — a/k/a interest payments — was a ordinary cost of doing business, and hence, deductible.
Keep in mind that during the pre-WW1 period, there was very little interest expenses paid by individuals. Home owners typically owned their houses outright (except for farmers, who either financed or leased the land). There were no credit cards, HELOCs, revolving credit, or student loans.
The deduction on interest was never intended to be a salve to the middle class. It was not designed to encourage home ownership. Indeed, when the interest rate deduction was first considered, home financing was non-existent, and home ownership was not thought of as a public policy. It is not part of any grand scheme of social engineering, as some have called it. It simply has existed since the Federal Income tax came about a century ago.
Indeed, the entire home mortgage deduction is little more than a historical anachronism, a carry over from when all interest payments were deductible.
Now you know . . .
Caldaro:
(more to say today short term than normal)
Today's gap down opening and follow through took the SPX to the 1041 pivot. This was an important support pivot during the last downtrend - May and early June lows. This pivot is also likely "make or break" time for this uptrend. The current two week decline has now pulled back 89 points (SPX 1129-1040), declining 7.9%. Since the bull market began in Mar09 the largest percentage pullback during an uptrend was 6.5% in Oct/Nov 09. Based on this statistic alone the market is already in a downtrend. If the OEW 1041 pivot fails to hold support, going forward, then Primary wave II is likely extending. The count posted on the DOW charts: Major A Jly10, Major B Aug10, and Major C underway would then be the preferred count.
Currently the decline can be counted as an ABC zigzag into todays SPX 1040 low, with both waves A and C equalling 60 points. There is another positive RSI divergence on the hourly charts and an oversold condition on the daily charts. If this market can clear the 1058 pivot it could get something going to the upside again. This pivot is currently acting as resisitance. If the market is ending this pullback now a sharp rally should follow to confirm. If not, we may be in for a choppy downsloping decline into Oct10 and the SPX 944 pivot.
Cobra:
In 08/24 Market Recap, I said that around 08/26(+-) could be a pivot date, if SPX pullback to 1040 around this pivot date, then there’s a chance that a Head and Shoulders Bottom could be in the forming. This was exactly what happened today. The SPX got support around 1040 and rebounded to form a bullish reversal bar, looks not bad. Well, does this mean that the market has bottomed? All I can say are maybe, could be, probably, possibly. Need see a follow through tomorrow for sure.
The bottom line, the short-term trend is down, well, barely, and I hold a tiny little short position overnight with very large stop loss. Has the market bottomed? Well, bulls need clear the neckline and MA(20) pink line above to claim the victory, right now, officially, still not confirmed yet.
Bespoke:
-Housing: The Lost Half Decade
While it has been a 'lost decade' for equities, housing isn't too far behind. The sector is now in the midst of a lost half decade and counting. Following up on yesterday's downright awful release of existing home sales, today's new home sales report for July came in at a seasonally adjusted annualized rate of just 276K, which is a record low dating back to 1963. Since peaking in July 2005, new home sales have now declined by more than 80% in five years. As seen in the chart, while the slope of the rally in housing was steep, the decline has been even steeper.
What makes the record low reading in new home sales even more notable is that we're at record lows even without adjusting for the growth in population. So even though the size of the US population has increased by 64% since 1963, new home sales are still at record lows. In the chart below, we have adjusted the new homes sales data by the size of the population. Here, the current levels are even more depressed. As of July 2010, new home sales totalled 0.09% of the US population. This is more than two-thirds below the historical average of 0.28%.
S&P 1500 Short Interest: Unchanged Since April
With the S&P 500 down more than 13% since its peak in April, one would think that short interest would have surged as investors pile on to the negative sentiment in the markets. A look at recent short interest figures, however, shows that just as there is little conviction in the bull camp, bears are just as apathetic. Since the market peaked back in April, short interest as a percentage of float for the S&P 1500 has barely budged.
Ritholtz:
Comical given our Twitter thread in the Saloon today:
50 Best Websites 2010: StockTwits
Congratulations to Howard Lindzon on StockTwits making Time magazine’s 50 Best Websites for 2010.
Here’s Time:
“StockTwits is a by-product of all that financial chatter on Twitter. Think of the website as a social ticker — instead of tracking stock movements, it tracks the ongoing discussion around each stock. Find someone whose advice you trust, add them to a watch list and get a real-time stream of investing insight. The unvarnished info can be a refreshing switch from all those makeup-encrusted anchors on financial-news shows.”
Congrats !
A Brief History of the Mortgage Interest Deduction
I keep finding very poor or misleading reporting on Housing in the US. Some of this is sloppy or lazy reportage; others reflect reporters being suckered by Think Tank spin and political narratives.
Lately, the area seems to be misreported the most is the coverage of the Mortgage Interest Deduction. The misleading impression created by some reports is that this deduction is the result of a specific policy designed to encourage home ownership. That is a false narrative, belied by history of the Federal Income tax.
Let’s take a quick look at facts so that people understand it better.
The first Federal Income tax in the US was passed in 1894, and subsequently struck down by the Supreme Court. This led to the passage of the Sixteenth Amendment (ratified in 1913), that empowered Congress “to lay and collect taxes on incomes, from whatever source derived.”
With this new power, Congress imposed the first taxes. Rates started at 1%, and rose to a whopping 7% for taxpayers with income in excess of $500,000. This applied to relatively few people, with less than 1% of the US population paying any income tax.
As an offset for the taxes, any interest paid (for any reason) was deducted. These were considered business expenses. Indeed, taxes on rents from real estate was a large revenue source. The financing costs of purchasing such rent producing property — a/k/a interest payments — was a ordinary cost of doing business, and hence, deductible.
Keep in mind that during the pre-WW1 period, there was very little interest expenses paid by individuals. Home owners typically owned their houses outright (except for farmers, who either financed or leased the land). There were no credit cards, HELOCs, revolving credit, or student loans.
The deduction on interest was never intended to be a salve to the middle class. It was not designed to encourage home ownership. Indeed, when the interest rate deduction was first considered, home financing was non-existent, and home ownership was not thought of as a public policy. It is not part of any grand scheme of social engineering, as some have called it. It simply has existed since the Federal Income tax came about a century ago.
Indeed, the entire home mortgage deduction is little more than a historical anachronism, a carry over from when all interest payments were deductible.
Now you know . . .