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This Is The Sell Signal May Have Tanked The Stock Market

This Is The Sell Signal That May Have Tanked The Stock Market

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

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Hopefully, everyone had a nice break from the stock market. I traveled a lot this weekend starting on Friday returning home today. Went to Kalahari Water Park for my daughter’s birthday, they told us that they were 100% book for the Christmas weekend. Recession anyone?  Lots of trucks on the road too, lots of Tesla Model 3’s.

Not that I’m some genius, but I noticed a lot of Wabash trucks on the road, that’s because they make them. I looked at the transcript from the third quarter call on October 31 for Wabash and they said this about 2019:

I will now get into those developments. When looking at the broader economy, GDP continues to reflect strength, but with slower growth in 2019, as compared to 2018, as the Fed continues to push rates higher, while trade and tariff issues continue. Consumer confidence is high and expected to stay there, while housing starts rebounded in August and September from the low in June and July. Overall, the economy feels solid and GDP levels close to 2.5% annually for 2019, would be a very helpful – healthy level for our markets.

It would seem a slowdown to even 2.5% GDP growth would be sufficient for this company to grow. Anyway, thought I’d through that out there. Again, slower yes, depression coming? No. Trucks are a pretty crucial part of the US economy for shipping, and the fact that customer is still buying trucks is a big positive.

The Breakdown

I also pieced together this fantastic chart, which again just confirms to me what the sell-off in the market is about. This is the S&P 500 versus the PHLX Housing Sector HGX, notice the divergence between the two indices around April. housing

Here is a closer view. You see the divergence on April 5, which happens to be the day in between the April ADP and BLS Job Report. Then notice how the HGX breaks support on September 21 a few days before the FOMC meeting,  the rest was history.

Then there is the last chart of US 30 Year Treasury, that shows rising interest rates were too much for the Housing sector to handle.

One can see was in the middle of October 2017 that 30-year rates dipped and the housing sector took off. We can see that the housing sector fell hard when 30-year rates began to rise, finally, both stabilized from February through the end of August. But it was on August 23 that rates started to rise again and the housing sector diverged, sending the housing stocks below technical support and likely triggering some sell-signal to the broader market

The housing market is likely the most interest rate sensitive part of the US economy.  Don’t believe the theory look below at Home Depot, Lowes, and the construction ETF ITB all peaked and broke lower at the same time.

itb

As did the XLI industrial ETF.

xli

So why is this all so important? because tomorrow we get 30-year mortgage rates and the Shhiller Home Price Index. Then on Thursday, we get the home price index, and on Friday we get Pending Home Sales.

Lets see what happens. You know what I will be watching very closely.

Mike

Photo Credit Via Flickr

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.