• Or should I say "tech wrecks"?

"One last thing."

- Lt. Columbo 

After the close, VMWare (VMW) (very nasty!) and Seagate (STX) (just nasty!) guide lower. 

• Thanks so much for reading my Diary today.

 Enjoy your evening!

• Here is a pie chart.

Below is a pie chart of the S&P 500's sector performance today.

S&P 500 Sector Breakdown

Source: Bloomberg

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• How much to buy?

My mavens on the floor see $100 million to buy market on close.

In terms of sectors, buys seen in telecom ($60 million) and financials ($45 million); sales seen in consumer staples ($25 million) and energy ($22 million).

In terms of individual equities, buys are in Verizon (VZ, $60 million), Exxon Mobil (XOM, $35 million) and State Street (STT, $30 million); sales are in Hess (HES, $30 million), Lorillard (LO, $25 million) and AIG (AIG, $23 million).

• Without further ado, here is Diana Olick discussing the housing outlook.

As promised, here is the video of the lynx-eyed Diana Olick discuss the housing outlook on CNBC.

As mentioned previously, some of her observations modify my opening missive.

• Welcome to Weirdsville.

Normally, I would say the weakness in the financials such as Citigroup (C), American Express (AXP) and JPMorgan Chase (JPM) bodes poorly for stocks over the near term.

But there is nothing normal about the market these days.

• From my perch, the shares are now fully priced with an uninspiring risk/reward.

Housekeeping item: Procter & Gamble (PG) has had a big run after its fourth-quarter 2012 earnings beat.

From my perch, the shares are now fully priced with an uninspiring risk/reward, and I have sold most of my long position in this name.

• Diana Olick discusses this issue on CNBC. 

CNBC's Diana Olick with a good conversation on the dearth of first-time buyers in the U.S. housing market.

It reinforces my points this morning, and I will post the video when available.

• Otherwise doing nothing.

I am bidding for Northwest Bancshares (NWBI) at $12.20.

Otherwise doing nothing.

• I remain a remnant.

It is remarkable to me how few bears remain.

I just finished watching a CNBC segment, interviewing two recently converted bearish strategists whose previous fundamental concerns remain intact but their overall market view has changed to bullish as the stampede higher has drawn them into the fold.

While I recognize the power of the crowd and of price momentum, I remain a remnant, and I continue to harbor numerous market concerns.

• Here it is.

Here is a video of my appearance on "Fast Money Halftime Report."

• Investing lessons from Sicily.

Here is a question from a subscriber (my friend/buddy/pal Roguey) in our Comments section:

Question "Theoretically stocks can move down,no?"

Answer:Inconceivable! 

• I discussed the subject on 'Fast Money Halftime Report.'

On "Fast Money Halftime Report," we briefly discussed short selling.

Here is the column I recently wrote on the subject in my diary.

• Here's a whiff.

Below is a look at breadth at midday.

• S&P 500: 201 advancers to 291 decliners
• NYSE: 842 advancers to 977 decliners
• Nasdaq: 1,166 advancers to 944 decliners
• Russell 2000: 1,076 advancers to 806 decliners

Volume on the S&P is 7% lower than past 10-day average, 2% lower than past 30-day average and 6% lower than Friday's volume for this time of day.

• Barron's had positive comments.

Avon Products (AVP) was mentioned favorably in this weekend's Barron's Roundtable.

• I hope this is helpful. 

Over the past few weeks at the end of the trading day (at about 3:50 p.m. EST), I have routinely registered what the market on close imbalances are.

I have received numerous questions from subscribers searching for an explanation of the source of the market on close orders.

The most notable effect on market on close imbalances (on any given day) is by far program trading that looks to mark trades at the closing price.

Also, ETFs often rebalance their portfolios at day's end.

Single-stock imbalances, relative to programs and ETF rebalances rarely effect the overall market on close.

The market on close information is published throughout the day (on Bloomberg and other platforms) and obviously changes right to the close with cancelations and pairings.

Most of the time imbalances are paired off, but sometimes they are not. Though unpredictable, this can create a trading opportunity.

The final market on close imbalances are published at around 3:45 p.m. EST.

I hope this is helpful.

• I'll be on CNBC's 'Fast Money Halftime Report' today.

I will be on "Fast Money Halftime Report" today with Judge Wapner and the gang, discussing why I am bearish on the U.S. stock market.

• Here is an intermediate-term chart.

Apropos to my opening missive, below is an intermediate-term chart on pending home sales.

Pending Home Sales

Source: Bloomberg

View Chart »View in New Window »

• They are overbought.

Based on my opening missive today, I would sell all housing-related stocks, which are overbought and overconceptualized.

• Durable goods delivered.

This morning the durable goods orders rose a better-than-expected 4.6% (consensus was +2%).

Vehicles, computers/electronics metals and machinery were strong.

I would note, however, that core capital goods shipments rose by a smaller-than-expected 0.3% (consensus was +0.8%).

Importantly, the December strength in durable goods was likely a function of the last month of the 50% accelerated depreciation bonus that companies were facing.

• A full-blown housing recovery is probably still a few years away.

We're beginning to hear noises that we've reached a major turning point in the housing market -- and that, with interest rates so low, this is a rare opportunity to buy. But are such observations on target?

It would be comforting if they were. Yet the unfortunate truth is that the tea leaves don't clearly suggest any particular path for prices, either up or down....

The bottom line for potential home buyers or sellers is probably this: Don't do anything dramatic or difficult. There is too much uncertainty to justify any aggressive speculative moves right now. If you have personal reasons for getting into or out of the housing market, go ahead. Otherwise, don't stay up worrying about home prices any more than you do about stock prices.

I can't offer any clearer picture, and I don't see a solid basis for anyone else to do so, either.

-- Dr. Robert Shiller, "A New Housing Boom? Don't Count on It," The New York Times (Jan. 26, 2013)

• A real estate recovery is under way (led by multi-family starts), but a full-blown housing recovery is probably a few years away.
• A 2013-2014 recovery in the housing market (and for the consumer in general) will be impeded by the fiscal drag of higher individual tax rates and lower government spending and possibly by higher interest rates.
• Construction activity represents a relatively small fraction of GDP -- its aggregate impact on domestic economic growth is being overstated by many.

Today there is an almost unanimous view (from John Paulson to nearly every other hedge-hogger and talking head) that the strength in housing will be the most important factor (or one of the more important factors) in offsetting the fiscal drag associated with the spending cuts and tax rate increases (necessary to pare down the burgeoning U.S. budget).

To many, a booming housing market seems to be an almost single justification for ambitious economic growth targets and for an enthusiastic view of the U.S. stock market.

Optimism surrounding the housing market wasn't the case 18 months ago -- indeed, back then there was a great deal of skepticism (that I didn't share).

Over the past year and a half I have consistently made the case that the housing market's upside would surprise most investors over the near term and that the U.S. residential market is likely to embark upon a durable and multiyear recovery.

The key points I made in my prior analysis were that the benefits of historically low mortgage rates, vastly improved home affordability and pent-up demand (once the U.S. economy and jobs market stabilized) would yield higher home prices and rising sales turnover. Some of these factors remain in force, but other depressing factors have been introduced that could produce a halting consumer, uneven housing activity and less certain home pricing over the course of 2013.

While I remain of the view that a durable housing recovery is in place, I am less optimistic about the next 12 to 15 months.

As Yale's Bob Shiller cautioned this weekend's New York Times and as Barron's' Alan Abelson chronicled over the weekend, the housing recovery may not be steady in progress, smooth in growth and uninterrupted in its trajectory.

The fact is that housing as a series (in activity and prices), more often than not, exhibits volatility -- even when it's on the way toward recovery.

In early 2013 the U.S. consumer faces uncommon hurdles that could adversely impact the housing markets and lead to disappointing personal consumption trends.

Specifically, given the backdrop of higher individual tax rates, reduced government spending, a possible trend toward higher interest rates and a still-chastened single-family homebuyer (who has recently faced an unprecedented 30% drop in home prices), I do not anticipate a smooth recovery in housing over the next 12-18 months in the face of these macro and consumer headwinds.

Multifamily housing is seeing the biggest growth; the housing start numbers from last week were misleading. Skewed data in the housing recovery is hiding the true problem -- too many multifamily homes, single homes won't see much of a bump unless first-time homebuyers get higher income. The point is that a drop in mortgage rates produced meager results, and we can't expect more stimulus money from the Fed to keep the number positive. Too much inventory of multifamily households is going to have an interesting effect on rents -- lots of competition will force rent prices to stay low; investors won't see a lot of return....

In other words, what this still appears to be is a stimulus-induced bounce that can only be replicated in 2013 if (1) rates drop 0.75% to 1.00% below the average 2012 rate (i.e., 2.25% to 2.50% on a 30-year mortgage); (2) rates stay the same, and foreclosures and short sales surge (comes at the expense of prices); (3) exotic loan programs not requiring income or asset verification quickly become the norm; and (4) employment and income levels surge.

-- Mark Hanson

As Mark Hanson points out, the single-family housing market lacks durable leadership -- repeat buyers are carrying the housing market. The more important first-time homebuyers "are out of fire power" and peaked in May 2012, investor buyers peaked in June 2012, and all-cash existing sales volume turned flat in December 2012.

I worry that the Fed's (non-duplicable) stimulus (ZIRP), which induced a housing recovery over the past 18 months, might have even pushed forward home activity and demand and could conceivably produce a 2013 hangover -- much like Cash for Clunkers , the Homebuyer Tax Credit (which led to outsized market strength in second half of 2009/first half of 2010) or any of the other one-time fiscal policy moves designed to take the economy out of the Great Decession of 2007-2009.

Even if housing continues to recover and exhibits something more than a stimulus-related bounce, it would take a hell of a rise in construction activity to impact aggregate U.S. economic growth given construction's relatively small role in GDP. For illustration purposes, let's presume the consensus is correct and that the residential housing market will continue to exhibit strong growth. Construction represents only about 3% of GDP. Therefore a 20% increase in construction activity will only positively impact GDP by 0.6% (before the multiplier effect takes hold). This compares against a likely 1%-2% headwind from spending cuts and higher taxes (I am user a larger multiplier than most.)

Bottom line: The future outlook (in both home sales activity and for home prices) is principally a function of three variables (and I hold to a less-than-optimistic view of all these factors).

1. Economic conditions: Strength in the domestic economy, wage growth and the status of the jobs market are the historic pillars of the housing market. I am less sanguine than most regarding these variables.
2. Credit conditions: The availability of mortgage credit and the level of interest rates are also important ingredients to the health of housing. A further rise in interest rates could grind purchase and refinancing applications to a crawl (as housing demand has been pushed forward), even though mortgage rates are low by historic standards.
3. The propensity for home ownership: The desire to own vs. rent is cyclical. The pendulum has swung from the speculation of the last cycle, in which homes were daytraded, to a more conservative view of home ownership (likely to be with us for several more years).

These three categories are not setting up to provide steady growth in the U.S. housing market over the near term -- there are numerous question marks.

Economic Conditions

My baseline expectation is for (at best) 1.5% real GDP growth in 2013 -- this is below consensus expectations. And I believe there is further risk to the downside.

I remain particularly cautious on the consumer (and homebuyer), who, despite a slightly improving jobs market, faces numerous headwinds.

Credit Conditions

In the last week the yield on the 10-year U.S. note rose from 1.82% to 1.95%. The consensus appears to be that the 10-year will rise no higher in yield than 2.25%-2.50% in 2013-- based in part on continued deleveraging, slow growth and a friendly Fed (which will effectively repress long rates). Homebuyers have become accustomed to low mortgage rates, but I would caution that given housing's historic rate sensitivity, any rise in interest rates above consensus expectations could immediately provide a headwind to the U.S. housing market. Indeed, I expect refinancing and purchase applications to suffer in the near term if rates continue last week's rise.

The Propensity to Own a Home

It is different this time -- the average middle-class U.S. consumer is beaten up.

Faced with two large stock market drawdowns in the last decade, a flash crash, screwflation (in which income has not kept pace with the costs of necessities of life: insurance, education, food, etc.), the largest economic recession since the Great Depression, continued jobs insecurity and a 30% drop in home prices, consumer behavior has changed and is not likely to revert to the historical spending patterns exhibited in the last few cycles.

A very good example of this is the evidence that individuals failed to purchase domestic equities until January 2013, as buying stocks took a backseat to making ends meet. As it relates to housing, the stunning drop in home prices in 2007-2010 will probably continue to be associated with a more conservative view toward home ownership and with a greater desire to rent. This helps to explain the continued lackluster single-family home market.

We can see this phenomenon demonstrated in the continuing dominance of multifamily starts relative to single-family starts throughout 2012. It will be interesting to see how the enormous supply of apartments will impact rents and home prices in the coming year.

Source: Mark Hanson

Summary

In summary, while a real estate recovery is under way, a full-blown housing recovery is probably a few years away.

I can see several factors (fiscal drag and higher interest rates) negatively impacting the consumer and serving to cause unevenness or even a pothole in the current housing recovery.

The housing market will not save the U.S. economy, and growing optimistic expectations for the residential real estate market are not likely to be met in 2013-2014.

Even if I am understating the recovery in housing, construction activity represents a relatively small fraction (3%) of GDP, and, as such its aggregate impact on domestic economic growth is probably being overstated by many.

• Courtesy of Caterpillar.

Between the sunshine of market optimism that is increasingly pervasive, here is what Caterpillar (CAT) said about the global economy in today's fourth-quarter earnings press release, which provides us with a dose of economic reality:

The range of our 2013 outlook reflects the level of uncertainty we see in the world today. We're encouraged by recent improvements in economic indicators, but remain cautious. While we expect some improvement in the US economy, growth is expected to be relatively weak. We believe China's economy will continue to improve, but not to the growth rates of 2010 and 2011. We also remain concerned about Europe and expect economies in that region will continue to struggle in 2013.

• Guidance was wide.

In line at Caterpillar (CAT) but massively wide guidance, with a big down first quarter.

• Here's a roundup of the analysts' actions.

Below is a quick summary:

• Robert W. Baird & Co. downgrades Apple (AAPL) to Neutral.
• CSX Corporation's (CSX) price target was raised from $25 to 429 at Jefferies.
• State Street (STT) was downgraded at Keefe, Bruyette & Woods.
• Piper Jaffray says that Amazon's (AMZN) guidance could miss consensus.

• Here it is.

Below is the economic calendar for today (including consensus expectations).