Disappointing Housing Data Stalls Stock Rally

The S&P 500 touched the 1100 level yesterday, a new high, before pulling back by the close. This morning, stocks are lower despite more better-than-expected earnings reports. The culprit looks to be a combo of some weaker housing data coupled with a bounce in the dollar which is weighing on the energy and materials sectors.

The bank sector is bucking the weakness so far today after Comerica (CMA) and Bank of New York (BK) both reported strong earnings. AAPL also reported a truly blowout quarter, and gave strong guidance, which is helping boost its stock to a new high above $200.

Housing starts came in a bit weak at 590,000 vs. expectations for 610,000. And building permits were also a tad light at 573,000 vs. 595,000 consensus. Housing data is always lumpy, so no single month should be given too much weight.

The dollar is bouncing today also, and as stocks have been highly correlated with the falling dollar recently, today is a reversal of that trend. Oil prices are near $79 after hitting the $80 mark yesterday, and gold prices are just over $1060.

Asian markets rose overnight. Today, Brazil stock prices are lower after the govt. announced it might implement a tax on foreign investment flows (like stocks and bonds). With all Brazil has going for it right now, this announcement seems ill-timed.

The 10-year yield is lower at 3.32%, and the VIX is up slightly to 21.49.

Trading comment: The short dollar/long commodity trade is once again probably one of the most crowded trades in the hedge fund universe. This sets up a nasty potential scenario for a short-squeeze that could cause the dollar to spike, commodities to sell off, and emerging markets would probably decline as well. This occurs from time to time, to keep traders on their toes, but would likely be another good buying opportunity if it did occur.

long AAPL, EWZ, VXX