I’m getting a lot of questions as to why I am covering shorts on the housing news today. The answer is always the same answer – the math.
The same math that got us to making a Housing Headwind call for a down -20-30% existing home sales print this morning (it was down -27.2%) is the same kind of math that drives our entry and exit points in markets – mean reversion. We try use the newsy nature of markets as our backboard for contrarian investing.
Despite months’ supply of homes for sale shooting up to 12.5 months (versus 8.9 months in June), despite the market being down hard on the “news”, and despite our intermediate term Bear Market Macro call on the SP500, we can still see an oversold market for what it is – immediate term oversold.
As of our 11AM EST refresh of the macro model, we’ll call any SP500 price under 1053 immediate term oversold. We continue to flash lower-highs of resistance and this morning we’ll show in another one at 1077 – we’d like to re-short the SP500 on another low-volume rally up closer to that price.
The upshot of this risk management view is that bear markets bounce, and this one will too.
Keith R. McCullough
Chief Executive Officer