Option Investor
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GDP, consumer confidence and new home sales

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This morning's economic data came in better than economist's had forecasted, but equities have turned lower as the Thanksgiving holiday approaches. Believe it or not, this is what I think a bullish short-term trader that like to play the historical bullish tendencies of a "Thanksgiving rally" wanted to see and most likely expected as institutional pros go to work and clean up some of their existing positions before the Thanksgiving holiday.

After this morning's pre-market announcement that the Q3 GDP was revised higher to 4%, which was above economist's forecast for a 3.2% gain, the Conference Board said that its consumer confidence index bounced back to 84.1 in November, which reversed a 5-month slide and erased about 1/3 of Octobers plunge to 79.6, when confidence dropped to a nine-year low. November's 84.1 reading also came in higher than economist's forecast for a 83.0 reading.

The Conference Board also noted that its current situation index was barely unchanged in November, rose to 77.6 from 77.2, while the expectations index rose to 88.4 from 81.1.

The consumer confidence data hints that consumers aren't expecting things to get much worse, but remain very cautious toward any thought of robust growth, and most likely look a the economy growing at a slow pace and creating little new job opportunities. At the same time, the data hinted that consumers currently employed may be feeling a little better about their current job security and looking for a raise in the coming months.

The consumer's view of the economy in the past six months improved slightly and had the percentage of participants polled that expect fewer jobs falling to 18.9 from 22.1, while the percentage expecting more jobs held steady at 15.3%.

Consumers look to be a little more optimistic about income growth, with 19% expecting higher incomes in six months.

In other economic news, the Commerce department reported that new home sales fell about 4% in October to an annual rate of 1.01 million, which marks the third highest level ever reported. Economists had forecasted a steeper falloff in new home sales of just 980,000.

The 4% decline in October comes after September's new home sales was revised higher to a more robust 1.05 million-unit rate from the previously reported 1.02 million first reported. October's new home sales showed the new home sales market remained strong and 16% above year-ago levels.

The 4% decline in October was largely due to a 32% plunge in new home sales in the Northeast, which followed a brisk pace of sales in September. New home sales also experienced a drop in the Midwest, down more than 17%. Gains for new home sales were found in the West (+4.2%) and South (+1%).

Inventory to sales data showed that buyers might be closing in on the seller's advantage seen in the past few years as new home sales at the end of the month totaled at 335,000, the most for one month since August 1996, while a month's supply of homes for sale climbed back to a 4.1 reading after sinking to 3.8 in September.

This morning's broader market equity tone has the Dow Industrials (INDU) falling 120 points (-1.38%), S&P 500 lower by 11 points at 921 (-1.21%), NASDAQ Composite off 17 points at 1,464 (-1.16%) and Russell 2000 Index down 5.5 points at 399 (-1.34%).

My thoughts are that senior traders are looking to get some of their open institutional sell orders cleaned up before they head out tomorrow at around lunch time to get an early start on a 4 day weekend. While the markets will be open for 1/2 session on Friday, many senior traders tend to take the day off, perhaps making a courtesy call to the trading desk on Friday, just to check in on things. There may be fewer senior traders heading for the exits compared to last year as the brokerage industry has seen some downsizing, but for the most part, even the institutional money managers are hard to reach much past 12:00 PM EST the day before Thanksgiving.

Traders looking to play the bullish side of things near-term, most likely find themselves sitting on their hands for the next 24-hours, but scour equities for stocks that have recently broken out of a nice trading base and look to be pulling back to that base, or are at the lower-end of a upward trending trading range. Thought here is that when the senior traders have finished their clean up of open sell orders by noon tomorrow, the markets will take on a bullish tone toward Friday's close and perhaps carry over into Monday. A nice little 250 pullback in the Dow then gives the bulls some relative high targets to shoot for over the next couple of sessions. With the Bullish % charts either in "overbought" territory or very near, most bulls welcome some type of pullback if looking to play a Thanksgiving holiday rally.

Jeff Bailey

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