We're Eyeing Market Support Levels and Pending Home Sales Numbers
Remember, opportunity tends to knock when investors are fearful.
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We are seeing renewed pressure on the stock market this morning, which is pushing the S&P short-range oscillator deeper into negative territory. That has us closely watching the 100-day moving average for the S&P 500, which we see in the chart below is just below 5787.
Should we hit that level, not only will the market be oversold, but it will also have experienced a 5% pullback from its early December high. While not enjoyable at the moment, pullbacks like that tend to happen a few times of year on average.
This curent pullback is also coming following a strong year in the market, and that has us considering it could be part of an effort to begin 2025 with a strong start. As we mentioned in today’s video, if the S&P 500 moves into short-term oversold territory an ensuing rally could emerge, potentially reinvigorating enthusiasm for a Santa Claus rally, the dates for which conclude with Friday’s market close.
We are also seeing the Fear & Greed Index on the cusp of moving into “Extreme Fear” from “Fear.” This has us reflecting on words from Warren Buffett about being greedy when others are fearful and fearful when others are greedy.
In the past, the combination of the market being short-term oversold with investor sentiment flashing Extreme Fear has brought opportunities to put capital to work at better prices. Last week we started a fresh position in American Express AXP and as we discussed in Friday’s Weekly Roundup, we did some other buying as well.
November Pending Home Sales Up for the Fourth Consecutive Month
The question we should ponder is what has changed from a fundamental and thematic perspective between last week and today?
Because we are in for another slow week, the short answer is “not much” has changed, but we did get the latest print for Pending Home Sales. This data set is another look at the housing market that falls somewhere between housing starts and home sales. Specifically, a sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. This means pending contracts are good early indicators of upcoming sales closings.
The Pending Home Sales Index (PHSI) rose 2.2% sequentially to 79.0 in November, which translates to a 6.9% year-over-year increase. More importantly, the November figure marks the fourth consecutive month of improvement in the data. It follows the 6.1% year-over-year increase in November Existing Home Sales, which also as we can see in the chart below has strengthened in the last few months. Together, these data points suggest buyers are no longer waiting for or expecting mortgage rates to fall substantially.
Along the line of thinking we shared in today’s video about how the market may need to re-recalibrate its rate-cut expectations if inflation data gets back on track, should that happen, we would likely see expectations for the housing activity improve. Such a change in sentiment would be positive for several portfolio holdings, especially Builders FirstSource BLDR. The next two data points we are waiting for that could lead to our next move with BLDR shares are Friday’s December Manufacturing PMI and the December Services PMI on Tuesday, January 7, from ISM.
As you mark your calendars for those items, be sure to note the stock market will be closed on Thursday, January 9 for the National Day of Mourning following the passing of President Jimmy Carter.
At the time of publication, TheStreet Pro Portfolio was long BLDR.
