The FOMC Ignores Weak Housing

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Januar y 28, 2010 – The FOMC Ignores Weak Housing

Fed Statement has contradictions, as the FOMC does not comment on housing. The daily chartsfor the US Capital Markets.

The Fed says that economic activity continues to strengthen and that is viewed as a positive bytraders around the world. Then they say that the deterioration in the labor market is abating when 43states say that unemployment is rising. The Fed claims that household spending is expanding, but isconstrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.Why can’t the FOMC say what they really think instead of this double-talk?

How strong can the economy be when bank lending is contracting, and with this situation how canthey predict that there will be a gradual return to higher levels of resource utilization in a context of pricestability. With gasoline prices higher than all of 2009, with defaults and foreclosures rising, the Fed isturning its back to Main Street USA. If the Fed believed that the US economy is coming out of Recession why do they feel compelled tokeep the federal funds at 0 to 0.25% when we know that this giveaway is the fuel Wall Street is using tokeep their proprietary desks in a speculative mode. A 3% funds rate can help Main Street and the Fedwould still be accommodative. The Fed continues to lack confidence that their policy will work.

Noticeably Absent was comments that the housing sector continues to show signs of improvement.How could they with Existing Home Sales down 17% and with New Home Sales down 7.6% to therelowest level since this series began in 1963? With new home sales down 23% in 2009, the HousingMarket is clearly deteriorating, and bad loans are rising at community and regional banks. These are the real problems that appear to plague any chance of a gradual economic recovery.

The decline in the 10-Year yield is overdone on its daily chart with the 50-day simple moving averageproviding resistance at 3.57. Risk aversion continues with weekly closes richer than my semiannualpivot at 3.675. Yields are up overnight with the 10-Year on the cusp of 3.675 with the 21-day at 3.73.

The key pivot for today’s $32 billion in 7-Year notes is 3.11, and a continued risk aversion issignaled by a close today below the 200-day simple moving average at 3.03. The 7-Year is cheaperthan 3.11 overnight, which could be a problem for this auction. The 21-day is support at 3.23.



Chart Courtesy of Thomson / Reuters

Comex Gold continues to hold a zone of support with quarterly at $1084.9, the December 22nd low at$1075.2 and weekly support at $1062.0. My annual pivot is $1115.2.

Nymex Crude Oil is oversold on its daily chart with the 200-day simple moving average as support at$69.75 and weekly and annual resistances at $76.22 and $77.05.

The Dollar Index is above its 200-day simple moving average at $78.60 for the first time since May 8 th.My quarterly resistance is $80.23. The support for the euro is the 200-week at 1.3857.




For the Dow Industrial Average I am tracking the 21-day and 50-day simple moving averages asresistances at 10,514 and 10,449 as a negative crossover appears on the horizon. That would be thefirst negative configuration by this measure since July 2009. Today’s support is 10,037 with my annualpivot as resistance at 10,379.


The China 25 Fund (FXI) is well below its 200-day simple moving average at $40.27 and this indexhad been above this milestone since April 29th. My annual pivot is $39.25, and a close this week belowthe 200-week at $38.64 is the next bearish signal.


The Housing Sector Index (HGX) is between its 200-day at $96.20 and the 50-day at $102.22.



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The FOMC Ignores Weak Housing