Bounce or rally? The market moves up on housing data, oversold technicals, and projections of better than expected economic growth

11/19/2012 5:17 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The headlines this morning attributed today’s stock market climb to good news from the U.S. housing market and an uptick in optimism that politicians will solve the U.S. fiscal cliff.

I wouldn’t forget about the market’s oversold condition and the effect of the short holiday week.

Existing home sales climbed to an annual rate of 4.79 million in October, according to the National Association of Realtors. That’s up from the 4.69 million annual rate in September. Economists surveyed by Briefing.com had projected a 4.7 million annual rate for October.

The percentage of sales accounted for by distressed properties—houses in foreclosure, for example—fell to 24% of all sales in October. That’s a drop from 28% in October 2011. The decline in sales of distressed properties helped push median home prices to an 11.1% increase from October 2011. The rising price of existing homes is good for future sales of new homes since it makes new homes comparatively cheaper when measured against existing homes.

So it’s not surprising that shares of homebuilders and home improvement suppliers led today’s rally. The Standard & Poor’s 500 stock index closed up 1.99% as of 12:30 p.m. Shares of Lennar (LEN) were up 1.88%. PulteGroup (PHM) climbed 1.4%. Shares of Lowe’s (LOW) rose 6.19% and those of Home Depot were up 1.95%.

The news on the fiscal cliff is a lot less robust today consisting of some positive comments from President Barack Obama while he’s on a tour of Thailand, Myanmar, and Cambodia.

I’d throw news from Goldman Sachs and Barclays into the mix since it reinforces the message from the housing numbers and extends it to the economy as a whole. Goldman and Barclays are out today predicting that the next revision of third quarter U.S. GDP growth will show the economy growing by 2.9% in the quarter. That would be a huge increase from the 2% growth rate reported by the Commerce Department in its initial figure for the quarter. A key driver, according to Goldman and Barclays, in the acceleration has been the strong performance of the—you guessed it—U.S. housing sector.

And, finally there’s no discounting the fact that this market was oversold after the punishment of the last two weeks and that we’re moving into a short week on Wall Street with diminished volume due to the Thanksgiving holiday.

How this mix sorts itself out after the holiday will tell us more about the market’s prospects for the end of the year than today’s action. The first level of resistance on the S&P 500 isn’t too far ahead at 1400. We’ll know more about bounce or rally when we see how the market behaves at that level.

But, frankly, I’ll take a bounce/rally today for any combination of reasons.

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