Look to Lumber for Housing's Potential

By David W Weigman  DEC 02, 2009 10:30 AM

Yesterday they rose and fell together, but are still in the black.

 


Yesterday’s Notable Technical Developments

Stocks rallied to new intraday highs on the Dow, but then sold off in the afternoon as multiple negative divergences (weak financials, weak market internals, etc.) pulled the indices back down to just below resistance.

Bonds were hit hard by a troika of influences yesterday: rotation from safe to risk assets again (temporarily); better housing and construction data; and comments from Federal Reserve Bank of Philadelphia President Charles Plosser indicating he would prefer the central bank move more quickly to combat inflation.

Commodities traded higher on dollar weakness, but the commodities ETF (DBC) failed to close above resistance at $25.

The U.S. Dollar Index finished lower again Tuesday -- but still above support at 74.20.

Critical Market Components:


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Market Internals:


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Chart of the Day -- Lumber Futures and the Philadelphia Housing Index
 



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Strategy: Monitor lumber prices for guidance as to whether the fundamental improvements in housing are for real and as to whether the housing sector is a potential buying opportunity.


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