US STOCKS PUT POOR HOUSING DATA IN PERSPECTIVE, MARKET HOLDS ONTO MONDAY'S GAINS AS VIX READING DROPS TO LOWEST LEVEL IN EIGHT MONTHS.
US EQUITIES posted a relatively neutral session on Tuesday, as commodity and technology stocks continued to climb amid further signs of improvement in financial and economic conditions. The VIX (US volatility indicator) fell below the 30 level for the first time since the collapse of Lehman Brothers, the event considered to be the “Pearl Harbor” of the financial meltdown. The sense of growing confidence in taking risk managed to weather a surprisingly poor reading on the number of new housing starts in the United States. The month over month drop of 13% (480K vs. 540K exp) could have been the exact catalyst which may have tanked the markets in previous periods of investor tension. However despite the reality check offered by this sobering number, the markets seemed to make “lemonade out of lemons” with regards to the interpretation of these numbers, as the majority of the drop off was in multifamily units. Single family dwellings performed far better. The markets also seemed to interpret these figures as the application of fiscal responsibility, as the focus of drawing down existing inventory should demonstrate the commitment to finding a bottoming range within the overblown housing sector.
Drops in volatility worked hand in hand with continued pullbacks in the LIBOR rate- a key measure of credit liquidity and perceived risk, to promote support for higher risk/ higher yielding investments. Measures of the costs of protecting corporate bonds continue to decline as many of the leading US financial institutions are positioning to payback government bailout money. Technologies gained as the markets expected strong numbers for Hewlett Packard after the market closed. The numbers did disappoint though and commercial real estate readings continue to show weakness.
Technically, June Dow futures offer little signs of a breakout. Support should set up at 8366 on pullbacks this week. Resistance should be found at 8520.
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