Will The Early Bounce Hold?

The market is showing its resiliency again, after some weak housing reports weighed on the market in the opening hour, but it has since clawed its way back into positive territory.

Housing starts for April (458k) came in below expectations, and below March levels. Also, building permits were also below expectations, and hit new record low levels. This was taken as indicative of weak economic conditions, causing some to question the health of the economy.

I think the silver lining is that we are still coming off a housing bubble, with a glut of homes on the market. So few housing starts and permits mean that the supply of existing homes will get sopped up quicker, and that will lead to firmer home prices and a healthier supply and demand picture going forward. So this is actually bullish in the sense that it should help pricing stabilize quicker.

Asian markets were nicely higher overnight; the dollar is lower this morning, but gold prices are higher; the 10-year yield is higher to 3.25%; and the VIX is breaking below the 30 level for the first time since Sept. 2008. This is a bullish development, and signals that the extreme volatility and wild swings in the market continue are behind us.

Trading comment: Yesterday I noted that the test near the SPX 875 level should find support and lead to a bounce in the market. So far that has been a good call. With the insurers qualifying for TARP funds, I would like to buy the insurance etf (KIE) on any pullback.

Energy and materials are leading today, and our materials etf (MXI) is starting to work. Individual stock plays also continue to work, and I will try to start highlighting more charts and breakouts each day. (shoot me a note of what you would like to see more of--)

long MXI