Let's Get Technical, Technical

It's time to start looking at specific macro-reports again for foretelling signs of potential trouble -- specifically housing and manufacturing in the Philly region.

(1) Housing
Housing has begun the much anticipated double dip. Home sales reflected this in their significant decreases a few months ago, and now it's being confirmed in home prices. For the first time in 5 months, home prices did not increase in a year-over-year comparison. Moreover, approximately 30% of homeowners reduced their listing prices recently. On top of that, we see word this morning that bank repossessions (foreclosures that can't be sold at auctions b/c buyers wont buy) hit a record high last month. It's a good thing that initial foreclosure notices remained relatively flat -- meaning that banks are attempting to slowly work through housing inventory to prevent a complete re-collapse in pricing due to over supply -- but that also means that the problem is here to stay for a long time, likely through 2012, especially if unemployment remains stagnate. The questions becomes, will housing deteriorate so significantly as to push the economy into another tailspin or will it stay moderately miserable and managable?

(2) Manufacturing
The Philly Fed report on manufacturing showed continued contraction for a 2nd month. Again, this is relatively expected as manufacturing recovery hit its blip and ran its course and should now return to normalcy. Plus, like housing, stimulative measures that once provided support now become a headwind for the sector. But significant deterioration only prolongs unemployment, lengthens the lack of economic recovery, and undermines confidence in a way that could propel fears to more substantial economic scares. Let's see how next month's Philly report responds before getting too nervous and let's see if the contraction may be isolated for whatever reasons to that region in particular.

(3) Technical Support
Finally -- the technical level of 1115 has been a huge floor for the recent bullish run. Failure to hold that level puts the market strongly back into the 1050-1115 range and with momentum to the downside. Today's reports (above) were quite disappointing, esp combined with Fed Ex's commentary on future economic prospects, but if the market sustains itself, it may be able to hold onto its gains until more (hopefully positive) economic reports emerge and provide more clarity.