Tuesday, 30 June 2009

Rally Has Shaky Foundation

New U.S. house-price data is out. Looks pretty horrifying to me. People are talking up the slowdown in the rate of decline or even a turnaround.
But take a look at these charts from the S&P/Case-Shiller folks. The first one shows something like a rate-of-change indicator familiar to technical analysts. As anyone knows who studies this kind of thing, this type of indicator can stay oversold or overbought for a long time before price changes course. As well, an upturn or downturn in this indicator often doesn't register in prices for a long time, either.

The more important chart is the second one, on the next page - showing the actual house prices. No trend change there. Still down. About 33 percent since 2006.

And still more important, to my mind, is that even when the price decline meaningfully slows, that still means massive amounts of banks' leveraged assets continuing to lose value. Until house prices actually start rising, that is. I think this rally ends in tears in a big way when that starts sinking in. Yikes!


In Debt We Trust said...

The BRICs are due for a pullback here too. Some EM indices are very overbought like Russia Micex up over 60% this year (mostly since mid-march).

The big story is commodities - especially w/crude #s coming out tomorrow. Continuing political instability in the ME and elsewhere would make the USD and yen safe havens instead of causing a bump in energy prices.

Would you short Emerging markets here?

Alex Roslin said...

Hi In Debt...,

Thanks for your message. I'm not shorting emerging markets myself. I still see the broader market as being probably in an uptrend for the moment. I don't think emerging markets have shown any sign of beginning to trend down, unlike for example the housing indices.

I don't generally believe in trading just because something is apparently overbought or oversold. I like to see a trend change in the price. But that's just me. Everyone has their own approach.


In Debt We Trust said...

Thanks for the feedback. In addition to technicals, I also like to buy the em funds (bear or bull) when there is a substantial discount to NAV.

Right now, it looks like the mm's are just chopping it to take both sides' money.

I am a big buyer on weakness and seller on strength. So far I do NOT feel bullish on any index funds as I do not see any "deals."


Search by discount % for index funds (not closed end).

DavidDT said...

people really need to learn to look at the bigger picture (human nature is not cut to grasp this concept - we are breed of "hopeful" - we hope for lottery, great jobs with no efforts, easy money in stock market).
To realize what we are about to face we need to understand that final washout is about to begin, dreaded W5 is about to unfold (and 38% is pretty much where it will get on the way up due to 2x magnitude of W3)
Speaking of "comm traders" - they are just as scared and hopeful as the majority of traders - and this time there will be no bailouts.
Good luck, trade well, stay safe