Charts: The S&P 500 closed at 980, down .26%. XLF and Cit Group (our canary in the coal mine) took moderate losses today but are up on the week and are showing technical strength. The broad index plunged hard today on the bad consumer confidence number and then staged a bullish reversal to finish nearly flat. The charts are remarkably bullish considering the weak fundies. Either the collective wisdom of the world’s investors is seeing through today’s serious problems to a brighter future or the market is being fueled by hot money.
Fundamentals: On Monday we learned that new home sales were up 11% in June, much better than expected. Home prices slid according to the Case Schiller index, but at a moderating pace. The Housing data is good but nobody is talking about the fact that the government’s first time home buyer tax credit ends this fall and it is probably artificially driving sales. Also, there is still a shadow supply of 600,000 unsold homes and Fannie & Freddie are losing $100 billion a year. This loss is a government subsidy to the housing market that can’t continue forever. Today’s consumer confidence survey came in weaker than expected. China can’t pull the globe out of recession by itself so weak American consumer confidence is bad news. On the flip side, oil prices plunged today; if they were to keep plunging it will help the consumer. The Treasury is auctioning about $200 billion in fresh debt this week, far and away the biggest auction ever. Today’s auction was a little bit soft, not too bad until you dig inside and notice that foreign buyers were largely absent. Tomorrow’s auction is really massive and if foreigners don’t step up it could get ugly.
Geopolitics: In the Russian province of Chechnya a suicide bomber killed five people, this Islamic hotspot continues to flare-up. In Nigeria, over the past couple days, Islamic bad guys have attacked police stations in 4 cities and killed 150 people. The Nigerian government said it killed 39 bad guys but retracted the statement; probably the original statement was accurate. The bad guys belong to Boko Haram, a chapter of the Nigerian Taliban. This Islamic hotspot is flaring up in a scary way. The Pakistan Army has repatriated 350,000 civilians back into the Swat Valley so far. The repatriation is proving to be tougher than expected. The SV Taliban is moving back into Swat along with the civilians and restarting its terror campaign of beheadings, etc… The Paki Army has its hands full with the situation in Swat and can’t begin the push into South Waziristan any time soon. The recent fighting in Swat saw the Paki Army killing 11 bad guys and arresting 25 with no good guy deaths. So the Paki Army continues to beat the stuffing out of the Taliban, it’s just taking longer than expected to eliminate them.
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