June 19, 2012 at 09:29 AM EDT
Market Hopes Still Alive.
Tuesday, June 19, 9:25 a.m. The market optimism two weeks ago, when Spain’s banks received the hoped-for bailout, lasted less than a day before it was realized that Spain’s government debt was an even more serious problem than its banks’ lack of capital, and the yield on Spain’s government bonds shot up. But markets soon [...]

Tuesday, June 19, 9:25 a.m.

The market optimism two weeks ago, when Spain’s banks received the hoped-for bailout, lasted less than a day before it was realized that Spain’s government debt was an even more serious problem than its banks’ lack of capital, and the yield on Spain’s government bonds shot up.

But markets soon recovered as hopes pushed Spain’s problems aside and focused on Sunday’s election in Greece.

And when the Greek election turned out to be a positive, with pro-euro parties winning, potentially kicking Greece’s problem down the road, the market’s optimism again lasted less than a day. Markets in Europe gave up most of their initial gains yesterday, and the U.S. market closed mixed, the Dow down on the day. Once again the problem was that focus was again immediately shifted to Spain, when the yield on its 10-year bonds spiked to well above the danger zone of 7.0% that marked the level where bailouts of Greece and Portugal became mandatory.

But market hopes remain alive, markets still positive, as European hopes move now to the G-20 meeting now underway in Mexico that will hopefully produce a coordinated global economic stimulus plan.

And negative economic reports continue to produce contrary reactions. This morning it was reported that Germany’s Investor Confidence Index plunged a huge 27.7 points in June, from +10.8 in May to –16.9 in June, versus the consensus forecast of a reading of +2.8.

European markets moved up on the report, apparently on hopes that the report will put still more pressure on the G-20 to act decisively.

At the same time hope has a backstop prospect gaining some attention, that if the G-20 doesn’t act, maybe the rescue will come from the EU (European Union) meeting June 28-29. 

Hope also got a lift from Spain announcing that it will delay a key audit of its banks until September. It doesn’t change anything regarding the banks’ serious problems but at least keeps the details hidden until September.

In the U.K., disappointed that the Bank of England left interest rates unchanged at its last meeting, hopes are now that the BOE will provide quantitative easing at its July 5 meeting.

In India, hope took a hit Sunday night (Monday in India) when India’s central bank ignored the expectations of analysts and markets, and did not provide another rate cut to help re-stimulate India’s slowing economy. The Indian stock market plunged 1.4% Sunday night even as the rest of Asia was rallying strongly in reaction to the Greek election. But it bounced back 0.9% last night, even though Fitch Ratings cut its outlook for India to negative from stable. 

And of course in the U.S., economic reports continue to indicate the economic slowdown is worsening, which has hopes high that at its two-day FOMC meeting that begins today, the Fed will decide to provide not only an extension of its ‘Operation Twist’, due to expire at the end of the month, but also some form of QE3 (quantitative easing).

So government officials world-wide seem to have the fate of global markets in their hands this week.

Markets are comfortable with that thought, but not quite as enthusiastic as last week and the week before, now that two hurdles have been cleared without solving their related problems (the bailout of Spain’s banks, and the Greek election). 

Are U.S. Home-Builders really a buy?

Home-builder stocks spiked up 1.8% yesterday in a flat market, after the National Association of Home Builders released its Housing Market Index, which measures the confidence of the nation’s home-builders.

Understandably builder confidence plunged after the bursting of the housing bubble in 2006, and has been dragging along the bottom near the worst readings since the beginning of the record keeping.

With the end of the ‘Great Recession in 2009 confidence began to recover, and continues to slowly improve from that extreme low level.

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And the home-builder stocks have also been recovering since early 2009.

But the NAHB report yesterday was that its Confidence Index came in at 29 in June, which means that only 29% of the builders polled are positive in their outlook for the next six months. That’s not exactly a forecast of good times ahead, 71% still pessimistic.

In another ‘Don’t make me laugh any harder moment’, the NAHB was only able to call it an increase by first revising the previous report for May down from 29 to 28. That allowed them to report the level for June, at 29, as being up from 28 in May, rather then flat.

It would be funnier if that little manipulation was not reported so exuberantly by the media, which can obviously affect investors as well as traders.

The headlines for yesterday’s report were “Home-Builder Confidence Hits 5-Year High!”

And investors were apparently tempted by the headlines, since the home-builder stocks spiked up 1.8% in a flat market yesterday.

I hope it works out for them. But looking at the charts first, it seems to me that a lot of good news for the home-builder stocks was already factored into their prices. They rallied 65% off their October low, and in the process the technical indicators became overbought, and have rolled over to sell signals from their overbought zones, and the stocks are potentially headed back down.

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Subscribers to Street Smart Report: In addition to the charts and signals in the premium content area of today’s blog, the Mid-Week in-depth signals report on the U.S. Market will be in the subscribers’ area of the Street Smart Report website tomorrow. And please also stay tuned to the hotline!

To read my weekend newspaper column ‘Markets and Governments Are Rolling the Dice!’ click here.

Yesterday in the U.S. Market.

A very muted response to the positive results of the Greek election, which apparently will not result in the feared immediate exit of Greece from the eurozone.

The Dow was up just 15 points at its high for the day, and closed down 25 points.

The Dow closed down 25 points, or 0.2%. The S&P 500 closed up 0.1%. The NYSE Composite closed down 0.1%. The Nasdaq closed up 0.8%. The Nasdaq 100 closed up 0.8%. The Russell 2000 closed up 0.2%. The DJ Transportation Avg. closed up 2.0%. The DJ Utilities Avg closed up 0.2%.

Gold closed up $1 an ounce at $1,628.

Oil closed down $1.01 a barrel at $83.02.

The U.S. dollar etf UUP closed up 0.4%.

The U.S. Treasury bond etf TLT closed up 0.5%.

Yesterday in European Markets.

European markets were also not all that impressed with the supposedly positive Greek election results. The London market gave up most of its earlier gains to close up just 0.2%. The German DAX ditto to close up only 0.3%. And France’s CAC gave up all of its earlier gains and more, to close down 0.7%.

Asian Markets closed up Sunday night but mixed last night.

The DJ Asia-Pacific Index closed up 1.3% Sunday night as most Asian markets, with the notable exception of India, reacted positively to the positive Greek election on Sunday. (India closed down 1.4% after disappointing investors by not cutting interest rates to re-stimulate India’s slowing economy).

But after European markets and the U.S. market experienced downside reversals yesterday from their initial positive responses, and the focus moved to Spain’s debt and banking crisis, Asian markets were mixed last night.

The DJ Asia-Pacific Index closed down 0.2% last night.

Among individual markets last night:

Australia closed down 0.4%. China closed down 0.7%. Hong Kong closed down 0.1%. India bounced back 0.9% (after losing 1.4% Sunday night). Indonesia closed up 0.5%. Japan closed down 0.8%. Malaysia closed up 0.7%. New Zealand closed up 0.7%. South Korea closed unchanged. Singapore closed up 0.6%. Taiwan closed down 0.1%. Thailand closed up 0.8%.

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Markets This Morning:

European markets are positive again this morning. The London FTSE is up 1.3%. The German DAX is up 0.9%. France’s CAC is up 0.6%.

Oil is up $.65 a barrel at $83.92

Gold is up $2 an ounce at $1,628 an ounce.

This Morning in the U.S. Market:

This week will be a quite important week for potential market-moving economic reports, including Housing Starts, Existing Home Sales, and the Phila Fed Mfg Index. But the most important is likely to be the Fed’s decisions and statement after its FOMC meeting on Wednesday. To see the full list and times for each release click here, and look at the left side of the page it takes you to.

Last week’s reports were more of the same dismal variety of the last several months, providing no indication that the economic recovery is back on track.

Yesterday’s report was that the NAHB Housing Market Index ,which measures the sentiment of home-builders, ticked up one point in June to 29 from 28 in May. But that was only accomplished because they revised their previous report or May from 29 down to 28.

This morning’s report was that new Housing Starts fell 4.8% in May, but permits for future starts were up 7.9%.

Our pre-open indicators have been working their way higher, not at all interested in the continuing negative economic reports in the U.S. and from Europe and Asia, the focus on how much the Fed’s FOMC meeting and the G-20 meeting will provide in the way of stimulus.

And confidence is high. Would either meeting dare to disappoint the markets? Not likely.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being up 70 points or so in the early going.

To read my weekend newspaper column ‘Markets and Governments Are Rolling the Dice!’ click here.

Subscribers to Street Smart Report: In addition to the charts and signals in the premium content area of today’s blog, the Mid-Week in-depth signals report on the U.S. Market will be in the subscribers’ area of the Street Smart Report website tomorrow. And please also stay tuned to the hotline!

I’ll be back with the next regular blog post on Thursday morning at 9:25 a.m.

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