The breakout that I've been telling my Profit Amplifier readers about recently has held.
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Specifically, I noted that from a technical perspective, the S&P was poised to breakout of near-term resistance around 2,860. I also said that things could really get running if we see a close (for at least two days) above index's recent intraday high of 2,873.
Well, that's happened now. This means that, barring any geopolitical catastrophe or natural disaster, the markets are establishing their next "leg up" -- and the path of least resistance should be higher.
The 2,873 level in the S&P 500, formerly resistance, will now become support. And the same patterns can be seen in the Dow Jones Industrials and even the Nasdaq.
As it stands now, stocks are looking pretty good, and I believe the rally should slowly continue into the fall with normal, momentary pullbacks occurring from time to time. I expect momentum to continue until a few weeks before the November mid-term elections, which are sure to wreak a fair amount of havoc as traders (likely) take profits ahead of this binary event. (I won't hypothesize outcomes just yet.)
I've Got My Eye On Housing Numbers
While much looks good on the surface, I'd be doing us all a disservice if I didn't mention the weakness I'm feeling in the housing market. Sure, rising home prices have put home ownership further out of reach of more and more Americans, but houses are also the nest eggs, profit vehicles, and loan collateral that I believe has driven the majority of our economic recovery during the past decade.
To me, the pending home sale data is far more important. It's the level of activity and excitement in the markets (or lack thereof) -- kind of like the amount of bidders at an auction.
If there are more contracts and more interest, there's justification for price stability, support, and, usually, growth. Fewer contracts and less activity likely spell future instability and declining prices, even if existing home sales look OK in the near term... except for they're not looking great, either. (Existing home sales have been declining over the past four months).
Put another way, the pending home data shows me the health of the marketplace in real time and gives me a preview of what could be happening three to six months down the road with actual contract prices.
As a realtor who is constantly examining the markets, I can tell you that there has been a marked slowdown in activity, and prices are coming down steadily around several major cities, including Dallas, Phoenix, Philadelphia and NYC (all markets I cover in detail).
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Part of this decline is due to price stress (buyers sick of having to continually pay up month after month), rising interest rates, and the fear of the future.
I do believe that these pressures will reverberate throughout the economy and will only get worse if interest rates continue to rise.
If these markets do not stabilize or turn around by late fall, my outlook for the equity markets will dramatically shift from cautiously bullish to bearish opportunist.
And with mid-term elections just around the corner, there is a small chance of a black swan type event if the far left (and even Democrats in general) gain control.
This isn't a dig on liberals at all, just an educated opinion based on 25 years of experience and LOTS of conversations I've been having on the topic.
My Profit Amplifier subscribers and I remain optimistic for now.
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