Option Investor
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Jump in new home sales not enough

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The major equity indexes along with Treasury yields are at their session lows despite a 7.3% jump in March new home sales to an annualized rate of 1.01 million, which handily beat economist's estimates of 905,000 and the highest level since December's 1.08 million annual rate.

While the jump in new home sales in the recent month can be viewed as "good news" in the month's ahead, today's reaction from the equity markets has been to "sell the news," while Treasuries, which had been finding "suspicious" buying this week, continue to see buying as yields across the major maturities fall to their lowest levels of the month.

The Dow Industrials (INDU) 8,310 -1.54% is lower by 130 points and current trade is below this WEEK's pivot of 8,328 and has rabidly approached the 8,270 level discussed in this morning's 09:00 AM update. Shares of Altria (NYSE:MO) $31.31 -4.8% and Intel (NASDAQ:INTC) $18.11 -4.46% are leaders on weakness. MO is seeing selling after negative comments by CSFB and Smith Barney, with Smith Barney saying they are "shocked" by the magnitude of RJ Reynolds (NYSE:RJR) $28.62 -16% (RJR and Altria own Philip Morris USA) earnings/volume guidance reduction. Earlier this morning, RJR said net sales plunged 20% to $1.22 billion in the latest quarter.

Shares of Intel (INTC) are hit lower after Smith Barney's Clark Westmont said there were four factors currently putting chip stocks at risk; increasing inventories, end-market deterioration in generic computer and handset sales, high stock valuations and the beginning of a seasonally weak three-to-four-month period. Westmont added that if only one or two of the factors were currently in evidence, they wouldn't downgrade the semiconductor group, but based on their observations, all four are currently observed and a more cautious tone is warranted.

The broad downgrade of the semiconductor sector has the Semiconductor Index (SOX.X) 323 -5.42% falling 5.42% and looking further vulnerable near-term to a crisscrossing 50-day SMA and 200-day SMA of 305.

The negative slide in the semiconductor sector has the tech-heavy NASDAQ-100 Index (NDX.X) 1,082 -2.24% falling 24.8 points and now below our daily correlative support levels of 1,098 from pivot analysis. The QQQ $26.94 -1.92% has fallen below our DAILY S1 of $27.25, which was most likely an aggressive bull's stop on a daily basis. as risk became the $27.02-$27.06 area, which the QQQ is trying to hug here, along with 38.2% retracement from our WEEKLY pivot retracement of $26.78. I'd expect sellers and near- term resistance to now be building back near the $27.30 level.

Sector action is broadly negative, with the Gold/Silver Index (XAU.X) 66.68 +0.78% the only sector finding gains. After yesterday's 4% decline, I would have thought this sector might have found more of a bid, considering today's decline in the major equity indexes.

Jeff Bailey

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