We are coming to the end of the quarter and that is good news. This has been a difficult second quarter caused not only by seasonal factors but also by political indecision both here and overseas. There is good news however with the recent durable goods report jumping to 14%. Basic economics 101 says you must have orders to increase production and hiring, well this may be a start. Home prices have increased for the first time since the withdrawal of the home buyer’s tax credits a year ago and sales in May increased this year over last.
What about the ending of QE2? Since this ground has never been plowed before no one really knows but it looks like with the second quarter being so weak the market has already discounted the effect. The durable goods orders last week could foretell that the market is looking forward and with the extreme oversold conditions our short term indicators are moving back into the buy range. The fulcrum point will be housing, and so now it fits together if employment improves in the upcoming months, housing sales and starts will move up, which adds more jobs to the structurally unemployed resulting in an inflection point for the markets. We have been missing these two market movers up to this point but something is brewing from the pent up demand cycle.
Looking back to last June we can find little differences on our charts as the market bottomed almost exactly like it is now. The only exception is that we are higher now than we were last year. I am staying with my discipline of not predicting markets; however my evaluations are looking positive. Only the market knows what direction it will take but I will not be shorting it at this point. The market is looking queasy, but that is not that unusual as June comes to an end. The stock market is giving you the best value of any time in the last 30 years. With earnings for corporate America and the amount of cash on the sidelines I am feeling very comfortable with my equity portfolios.