Updating Saturday and Wednesday.
Existing home sales rose 1.8 percent in May to an annualized 5.530 million which, though only modestly above recent readings, is still the best rate of the cycle, since back in February 2007. The year-on-year rate, in line with a long run of flat sales, is soft at only plus 4.5 percent. Crude oil inventories fell 0.9 million barrels in the June 17 week to 530.6 million, the fifth weekly decline in a row. The year long decline in the active rig count has finally brought production below demand. The summer driving season is eating into stockpiles, and the price per barrel of oil is in the high $40 range. Strong and welcome strength is the signal from jobless claims which are at historic lows and trending lower. Initial claims fell a very sharp 18,000 to 259,000 in the June 18 week. Activity this month is moving higher from a cycle low in May for Markit’s U.S. manufacturing sample where the June flash is at 51.4, up from 50.7 in final May. New home sales fell a severe looking 6.0 percent in May but the annualized sales rate, at 551,000, is second best of the cycle. Skewed by a since-reversed rise in jobless claims, the index of leading economic indicators fell 0.2 percent in May. Minus signs spread across the durable goods report with total new orders down a very sizable 2.2 percent. Consumer sentiment was solid going into Brexit, at 93.5 for final June vs 94.3 in the mid-month flash and against 94.7 in May.
It’s a slow growth economy, but there are a few concerns, with new home sales falling in the usually strong spring, the leading economic indicators slipping, durable goods orders down, and consumer sentiment slightly down. My eyebrow is raised.
Clearly the big deal of the week was the Brexit vote, with Brit’s voting to leave the EU. It will take about 2 years to finalize the exit. It came as a surprise to the markets, and a global selloff ensued on Friday.
The market got hammered yesterday, down about 3% on the S&P, in response to the Brexit Leave vote. Since I was mostly in cash, having sold into the last rally, I was largely unaffected. MACD has just turned down, never a good sign for the short run. The RSI fell so fast, it is almost oversold in the short run, but other factors seem more important now. The great trading range continues, with the market approaching a breakout, then failing again and falling back. The bull market looks tired.
The market will look for stocks with a heavy exposure to England and punish them. Uncertainty will reign for a week, maybe two. The market is overvalued by the PE ratio of the S&P 500, and it could use this as an excuse to sell off more. Eventually we will get to a buying opportunity for us swing traders.
I had a buy order for some Apple at 94, but before the market opened on Friday, it traded at 93 in the pre-market, so I changed my buy order to 92, which did not fire yet. Apple sells at a PE of 10, quite a discount to the S&P up at 23, and it yields 2.4%. They will go into a new product cycle in Sept. with the iPhone 7. Apple will not grow as fast as it did while the iPhone was less mature, but it has become a solid mature company. That is why Apple has fallen from $130 per share down to 93; it lacks the growth characteristic it once had. It is not blowing away, it has a huge cash hoard, and it has future opportunities to innovate, with a virtual reality product, and it is working on a self-driving car. Who knows? Now I only buy Apple on pullbacks (but I like to buy everything on pullbacks!).
If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.
Your comments and questions are always appreciated, so feel free to comment or ask!