The Market Perspective

A Peak in Home Prices

Friday Oct 8 2021

 

 

Why a Peak in Home Prices May Be Approaching
"Is it a good time to sell a house?"

By Elliott Wave International

Some people buy a house solely as an investment.

Others want a better place to live -- perhaps more room for a growing family. The investment part is secondary. However, even people in this category would likely hold off on a purchase if they had an indication that lower home prices were just around the corner.

Well, there is such an "indication."

First, a little historical context: In 2005, near the peak of the prior housing bubble, a University of Michigan survey asked participants, "Is it a good time to sell a house?"

In August, September and October of that year, a then-record high percentage of participants said "yes." Eight months later, in June 2006, U.S. home prices topped.

With that in mind, the September Elliott Wave Financial Forecast, a monthly publication which provides analysis of major U.S. financial markets, explains what that same survey recently revealed:

[A] series of questions in the University of Michigan monthly sentiment survey tracks attitudes toward home prices. ... This chart shows affirmative responses to the question "Is it a good time to sell a house?" ... The latest reading of 48 is twice the peak reading at the end of the last housing boom. [This is] a more-than doubling from March to June of this year. [emphasis added]

This sentiment survey may not be a precise timing indicator. Recall the eight-month timespan between the 2005 survey findings and the 2006 peak in home prices. Yet, it is still a "heads up."

Also keep in mind this astounding headline (Marketwatch, Sept. 30):

Home prices have risen 100 times faster than usual during the COVID-19 pandemic [emphasis added]

So, in at least one way, the current housing mania is even more stark than the last one.

Of course, home prices might climb even higher... or not. Is there a way to go beyond guessing, though?

Yes. The stock market and housing prices tend to be correlated. If you know what's likely next for stocks, big-picture, then you also know what's likely next for real estate.

The best way to determine what is next for the stock market is to employ the Elliott wave model.

Here's what Frost & Prechter said in their Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

It is our practice to try to determine in advance where the next move will likely take the market. One advantage of setting a target is that it gives a sort of backdrop against which to monitor the market's actual path. This way, you are alerted quickly when something is wrong and can shift your interpretation to a more appropriate one if the market does not do what you expect. The second advantage of choosing a target well in advance is that it prepares you psychologically for buying when others are selling out in despair, and selling when others are buying confidently in a euphoric environment.

No matter what your convictions, it pays never to take your eyes off what is happening in the wave structure in real time. Ultimately, the market is the message, and a change in behavior can dictate a change in outlook. All one really needs to know at the time is whether to be long, short or out, a decision that can sometimes be made with a swift glance at a chart and other times only after painstaking work.

If you'd like to read the entire online version of the book, you may do so for free when you become a Club EWI member. Club EWI is the world's largest Elliott wave educational community with about 350,000 members.

It costs nothing to join Club EWI and members are under no obligations. At the same time, Club EWI members enjoy free access to a wealth of Elliott wave resources on investing and trading.

Follow the link to have this definitive text on the Wave Principle on your computer screen in just a few minutes: Elliott Wave Principle: Key to Market Behavior (free and unlimited access).

This article was syndicated by Elliott Wave International and was originally published under the headline Why a Peak in Home Prices May Be Approaching. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Rally Fading

Thursday Oct 7, 2021

A stock that  is emblamatic of the final parabolic rise ij the niddexes is Cathie Wood's ARKK

Ms Woods created this ETF for Innovative companies most of which do not make any money It is now trading around a FIB .618 of its early 2021 high when most of the stock in the market peaked. The WSJ tells us she is leaving NYC for Florida, perhaps this will be a kiss good bye to Wall Street as the tops have formed in various indexes the last few months.

INDU 4 Hour

The top in the INDU was August 16. Since then a Wave one down in August  was followed by a Wave two lower high in early September.

We are now in a third wave so the potential for much lower prices is at hand. Couple that with typical seasonal weakness, the negative mood towards the President among Independents, the deteriorating Chinese Property DDevelopers, high gasoline prices and well there you have it.

Crude oil and natural gas reversed their rise yesterday amid remarks by Putin. And it looks like we have five waves near complete on the weekly  chart.

Hmm, if nat gas and crude oil have topped, are we seeing transitory inflation?  The silver chart suggests we may be.

Cable business channels are amok with exhoortations to buy silver, we need it for electric cars, there is a shortage, well the market says otherwise.

Actually this look a lot like ARKK for this year, both peaking in February.

Negative mood results in exclusionary behavior, has anyone noticed this among some of our most wealthy individuals

John Paulson is divorcing his wife of yes a socio moment, 21 years, an anniversary tied to the March 2000 stock market high. It may be the most expensive divorce of all times.John is 65. current wife Jenny is  50 and the new girl friend is 33

Bill and Melinda Gates are spending their fortune on lawyers.

Here in San Antonio prominent developer Graham Weston is divorcing. Inijury attorney Thomas Henry is squabbling with his common law wife over whether they are actually married.

Brad Pitt and Angelina are selling assets during their divorce, she just sold her $164 M French estate.

 

 

Brinksmanship

Wed Oct 6, 2021

It used to be that Dems like Tip O Neil and LBJ would negotiate a compromise, but I am not so sure about Bernie and AOC.  If their supporters will follow a female US Senator into the public restroom and video the entire event, is there anything they won't do?

 

Check out the lead editorial in the WSJ today. Sanders won't budge and the Debt Ceiling deadline looms. Would the let it expire,  let the Treasury default and then try to blame it n the Republicans, I would not be surprised. I am looking for a big market correction and in fact suspect we have seen the top of the bull market dating back to  1982.  A Treasury crisis would ceretainly be a kick off to the 233 year market top

Five Waves Down for Apple

Wed Oct 6, 2021

Free, read now: "AAPL and FANG+: '5 Waves' Speaks Volumes"

 

Crude Oil Didn't Get the Powell Memo

Tuesday Oct 5, 2021

Fed Chair Powell says inflation is transitory, crude oil did not get the e mail.

WTIC rose to over  $79 today and Brent is higher.

The new low in the SPX is setting up a move lower over the next two months.  Notice  the index backed off the last hour.  Yes we had a big rally today but lookin at the chart, not so much, it just relieved the oversold condition.

As I write Larry Kudlow has Art Laffer on criticizing the Dem spending bills. He did observe that price controls over Federal salaries might be a  great idea.

The nomination for the new Comptroller is a graduate of Moscow University who hates banks.

Janet Yellen I understand opposed this nomination but  now backs it. I predicted Yellen would regret taking  the Treasury job and that will yet come true.

TBF should make a new high over the next couple of weeks.

The Fed You Never Knew

Tuesday Oct 5, 2021

I will address San Antonio CPA  Society members later this month on the topic in our title for this post.

Most everyone thinks the FED sets interest rates. They do not, at best they follow the 2 year T Note rate.

 

Here's What Really Sets Interest Rates (Not Central Banks)
See "powerful evidence that the Fed is not in control of interest rates"

By Elliott Wave International

Most everyone is familiar with the phrase: "Keep your eye on the ball," which of course means -- focus on what really matters.

Those who seek clues about the direction of interest rates believe the "ball" is their nation's central bank.

For example, in the U.S., Federal Reserve announcements are the subject of countless financial headlines, like this one from Sept. 22 (Reuters):

Fed signals bond-buying taper coming 'soon,' rate hike next year

The assumption in most of these headlines is that the central bank determines the direction of rates.

However, if interest-rate observers kept their eye on what really matters, they'd be watching the bond market instead of the central bank. In other words, markets lead and central banks follow.

Sticking with the U.S., this chart and commentary from Robert Prechter's 2017 book, The Socionomic Theory of Finance, provide elaboration:

[The chart] plots T-bill rates and the effective federal funds rate (a weighted average of the federal funds rate across all banking transactions) from 1978 to 1984. T-bill rates peaked four times in 1980-1982. Each of those peaks occurred a month or more before subsequent and reactive peaks in the federal funds rate. The Fed's rate also lags at bottoms, as depicted on the chart at the lows of 1980, 1981 and 1982-3.

The book adds:

That interest rates were in a relentless upward trend during the entire decade of the 1970s and that they have been stuck at zero since 2008 -- in both cases despite the Federal Reserve's contrary desires -- is powerful evidence reinforcing the point that the Fed is not in control of interest rates.

The same principle holds in other nations, like Australia or the United Kingdom.

Here's another chart and additional commentary from The Socionomic Theory of Finance:

[The chart] plots interest rates on the U.K.'s freely-traded, 3-month government bond against the Bank of England's (BOE's) official daily bank-lending rate. These lines show that the BOE's rate-setting actions have lagged the freely traded debt market at all twelve major turning points in rates since 1993. The lags vary from two to nine months, and the average lag is 4.8 months.

The major takeaway is that central banks' interest-rate decisions are not proactive but reactive.

Another widely held misconception is that news drives financial markets, like stocks.

Here's insight on that pervasive assumption from Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior:

Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.

The market's progression unfolds in waves. Waves are patterns of directional movement.

If you'd like to read the online version of this "definitive textbook on the Wave Principle," you may do so for free once you become a Club EWI member.

Club EWI is free to join and allows members free access to a wealth of Elliott wave resources on financial markets, investing and trading -- without any obligations.

Here's the link to follow for free and unlimited access to the book: Elliott Wave Principle: Key to Market Behavior.

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This article was syndicated by Elliott Wave International and was originally published under the headline Here's What Really Sets Interest Rates (Not Central Banks). EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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Entering Seasonal Weakness Period

Tuesday Oct 5, 20221

We have posted this or similar graphs throughout this summer. It shows the percent of S & P stocks above their moving average from  95% to just over 52 %. Point being the broad market is really falling fast.  Yet in the bottom panel the SPX made a new high. The explanation for this is the heavy weighting of the FANG stocks in various index. Those stocks have held up the overall averages. But as one can see the SPX is beginning to fall. See the article on page B 1 of the WSJ today, Tech Selloff Sinks Stock Indexes.  FB fell 4.9%. As one fund manager remarks it is hard to offset that downdraft with the other  495 stocks.

Let's take a look.

Amazon is tracing out a big head and shoulders pattern dating back to April.

Facebook is facing mounting scrutiny and a six hour outage Monday. A former executive is leaking information. And the stockholders are leaking profits.

Down  60 points this month.

Google is fast losing via on balance volume as well as price

 

twitter is off but

twitter is off but NFLX is still strong.

NASD 100 has had some good rallies but they just bounce to the downtrend line.

Bottom Line

We look for a sell off beginning Oct 7-8 witg a fall into Oct 19-20. That  should spark a rally with another low due late November.

Prepare for a Large Down Turn

Weekend Oct 3 2021

I am relaxing after speaking at the conference of Inst Mgt Accountants statewide here in San Antonio.

Got the class assignments up for this week.

And today is my birthday so I am celebrating with wife and two dogs.

I expect the markets to advance slowly into Wed Thursday. Then start adding bear funds like HDGE and put options on indexes with an expiration for late November.  All the weekly charts show the PMO turning down. Here is a good example. Read our weekly newspaper columns posted at the end of the last few weeks, this week Thursday the previous on Fridays, that is a good summation of where we are.

LBJ must be spinning in his grave upon being informed a Democrat President with the White House, Senate, and House majority cannot get his own bill passed, negative mood reigns. A Bear Market of major proportions has begun.

Long term view of INDU

 

 

Few See this Coming

Thursday Sept 30 2021

I posted my weekly newspaper column here this morning. I just received this in my e mail from a major 'advisory firm'

Getting Ready For The Next Leg Up By: Kevin Matras September 29, 2019

 

Kevin has had a great run so far, but these things do not last forever.

 

Kevin goes on to say all the averages made knew highs, not they did not,Transports were first followed by Industrials then Utilities and finally

NASD and NDX. the market ended ten points above the low of the day, /see Tuesday Sept 28. Transports have fallen near  1,000 points since mid August.

Interest rates are rising and the more of the package the Dems pass the faster rates will rise

 

I am out Friday and Sat morn addressing and attending the Texas Inst Mgt Accountants statewide meeting here in San Antonio..

Class Sat afternoon and then a webex with a  student, next update Sunday.

 

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The Correction Begins

Thursday Sept  30 2021

 

All three DOW averages have now topped. The Transports came first topping May 10. Transports are now trading under the 200-day Moving Average of 14,284.

We have mentioned the divergence between Transports topping and Industrials making a final high August 16.   Trading down over 400 points this Thursday morning, the 200-day MA at 33,360 is not far away.

Utilities are not part of Dow Theory but topped September 2 and then quickly took took out its 200-day MA at 887.

The NASD, NDX 100, and Facebook all topped the firs week of September along with the Utilities.

Meanwhile, yields on the widely watched Ten Year Treasury vaulted from the low of 1.15 in August to 1.55% today. Percent wise, that is a big jump.   Jerome Powell’s transitory inflation is not noticing the transit part. Cable business shows feature a parade of CEOs grappling with increased casts (Pizza Hut, Fed-Ex, shale producers) and unable to find employees.

Be aware that we have multiple cycles converging including a 233 year from 1788, and a 20 year from 2001, and a forty year from 1981-82 when the DJIA finally bottomed. My e-mail box is full of predictions of year end S & P 5,000 targets. I don’t think so. Lows in late October and November are likely for stock indexes. This would be followed by a lower high in Spring 2022 than what was recorded in 2021. You heard it here first.

West Texas Intermediate is trading at $75 and Brent hit $80. We titled a recent column Not So Fast. In it we noted Europe is short of wind and solar and had closed many coal-fired plants. Vladimir must be pleased that Biden has agreed to the Russian pipeline to the EU while doing all he can to shut down US producers and pipelines. Natural gas futures have spiked to $5.50. In 2019, 81% of the energy supply came form fossil fuels according to the International Energy Agency. Solar and wind only supply electricity. But planes, trains, and ships rely on fossil fuels. IEA estimates fossil fuel will still provide 73% of energy by 2040. And as we noted last week, Zoom and Webex has saved a lot more gasoline this year than electric cars.

Nothing looks good on the social mood front. Democrats scramble to pass their trillion dollar entitlements. Demand have never been higher for tax accountants, and no wonder given the mountain of rates that will be hiked if all this comes to pass. Democrats argue among themselves but had no problem coming together for 60 Senate votes on Obama Care.

Biden’s approval rating among Independents is a mere 37% and falling. A record high stock market with falling faith in the President ushered in the bear market of 1973-74, dropping the DJIA 50%