Macro Update

The global economy continues to look like it's slowing down.  

 Doctor Copper is down 30% since 2011.  It recently broke thru support at 43.  The last line of defense is at 40.  A support break points to much lower Copper prices.  As one of the critical industrial metals, a break would signify that a significant slowdown in process.  The indicators are quite oversold which may lend some support to Copper.  After this weeks plunge in Gold from a very similar looking triangle, it's probably best to wait to see how the market handles 40 before placing a trade.  Long term triangles like the one Copper is sporting tend to resolve themselves in a continuation of the prior trend (up in Copper's case) but when they don't...look out below.

 Lumber is taking a much needed pause.  After a 120 pt (40%) romp since October, Lumber looks tired.  Good support comes in at the 34 week ma, but the indicators suggest Lumber will hit major support at 320.  Mill shutdowns in the wake of the housing bust has caught producers undersupplied, while the Home Builders have been squawking for more and more product as new home starts have rebounded from extremely depressed levels.  Consequently, new Home Builders have seen framing lumber prices take off.  Likewise, the price of just about every home building material has increased.  The next shoe to drop will be when construction labor stops clamoring for higher wages.

The above chart of the Home Builders helps explain Lumber's price increase.  The Home Builders have zoomed from 280 to 400 in the last 18 months, a whopping 150% increase.  The Homies are on the verge of breaking a significant trendline.  Additionally, the index closed below the 13 week ma.  I believe the correction won't be too ferocious but will represent a pause in light of such an increase.  I would expect the Home Builders to rattle around while the indicators reset.  As long as scant standing inventory remains in the marketplace, Home Builders ought to be able to make money, even with historically low starts.

 

 Oil showed more cracks this week, breaking a 4 yr trendline.  Additional support shows up at 27.  Price has been fairly stable since the bottom in 2009, wavering between 30 and 40 with a flat MACD.  Probably not worth it, but a reasonable scalp would be going short at $32.25 with a stop at $34.25.  The target would be 28.

 

Fortunately, Unleaded Gas has been trading in a well defined range since 2011 bouncing between $3.40 and $2.50.  This move looks like more of the same with a bounce at $2.50.   This move down represents a reasonable shot at a triple top which would portend a move down to $1.70.  This doesn't seem likely, but I would certainly be in favor of significantly lower gas prices.  The more likely trade would be to go long at $2.50 with a tight stop at $2.40.

  

Just when it looked like rates couldn't go any lower, they appear poised for another plunge.  The TLT above shows the bond price, which has an inverse relationship to rates.  This powerful looking flag has the potential to push the bonds up to 155 over time.  While lower rates are a boon to borrowers, lower rates will probably be the result of a slowing global economy.  Mortgage brokers may soon see yet another refinancing boom.  Holding bonds here looks good with a stop at the confluence of the moving averages 119.  Confirmation of the uptrend will be when the indicators break the downtrend lines, and, when a new high is established at 130.

The big question for me is will a slowing global economy derail the rebound in housing.  Lower Copper & Oil prices have been attributed by many pundits to a slow down in the emerging markets like China & India.  This wouldn't appear to affect the local housing market.  Higher Lumber & Home Builder prices reflect increased demand for homes vs a shortage of available homes for sale.  Slower global growth that results in lower interest rates helps increase the demand for local homes.   Taken together, lower interest rates should trump other deflationary trends resulting in a decent housing market.