Stronger Home Sales Report Spurs Breakout In The S&P 500

Stairstepping into the weekend. The market looks like it again staged a mild 2-day pullback, before embarking on another move higher. This morning, a strong housing report has spurred strong buying and led to a breakout in the major indexes.

The S&P 500 is currently +1.56% higher, and trading above its Aug. 7th highs. Ditto for the Nasdaq and the Russell 2000 small-cap.

The July existing home sales report showed that home sales rose +7.2% last month, much better than expected. That equates to a rate of 5.2 million homes, up nicely from June's level of 4.9 million. I recently posted that I felt the signs were improving that a bottom in housing had been reached, and I received a lot of hate mail for it. This datapoint is another supporting item for my thesis.

The dollar is lower today, helping boost commodities. Oil is trading above $74 and gold is trading above $950. This is also helping boost the energy and materials sectors, which are leading the action.

Europe was strong this morning, while Asia was mostly lower overnight. There are lingering concerns that Chinese bank regulators are considering rules that will dampen loan expansion.

The 10-year yield is higher today to 3.53% and the VIX is another -1.6% lower to 24.69.

Trading comment: I have said that I felt sentiment was the key to the recent correction. Interestingly, the put/call ratios have been high all week and yesterday the AAII survey showed a big jump in pessimism, and abrupt about-face to the recent surge in optimism. The bull/bear spread in the survey spiked lower to -6 from +18 the previous week. Bulls dropped all the way from 51% to 34%.

So while I didn't think it would happen that quickly, the shift in sentiment again helped the market move in the opposite direction, as today's move higher likely again caught many traders leaning the wrong way. Jesse Livermore said that is exactly the diabolical purpose of the market, to fool the greatest number of people.