Monday, October 16, 2023

SPX, INDU, COMPQ: Legacy Charts and a Horn Toot

So I've been holding my tongue on this, but it's time to toot my own horn for a minute on a prediction I made almost exactly a year and a half ago, because it probably won't hold forever.  This prediction was based on my analysis of the real estate market back in April of 2022.  As far as I know, I was the first analyst to make this very specific prediction... key here is "as far as I know.  It's entirely possible someone else beat me to it, but if they did, I don't know about it -- what I recall at the time was that many people were predicting a precipitous drop (or an outright crash) in housing as interest rates rose.  Which obviously didn't happen, in large part for the exact reasons that I highlighted on April 18, 2022.  As I wrote then:

This means that as the music stops and mortgage rates rise, we have a much different dynamic in play this time. Rising rates do, of course, have an impact on future affordability -- but they have no impact on families already in a home (presuming these families have a fixed-rate mortgage, which, as we already covered, the vast majority do). If anything, rising rates might tend to inspire people to hang on to their homes longer instead of putting them up for sale, which would have a tightening effect on inventory. After all, if you're in a mortgage at ~3%, what possible incentive do you have to ever exit that loan with inflation running above or near 8%? 

As I mentioned earlier, inflation should provide a tailwind for housing -- in more ways than one. If my reasoning above is in the right ballpark, then rising rates may, perhaps counterintuitively, provide impetus for inventory to ultimately balance. Houses might spend more days on market due to fewer buyers, but if fewer homes are being brought to market in the first place because families are incentivized to stay put (or to turn their old 3% mortgage home into a long-term rental), those seemingly-opposed forces could tend to counteract each other.

And, of course, now that my initial prediction has become reality, everyone treats it like it was obvious all along.  Below are CNBC's bullet points from a couple months ago; basically exactly what I'd speculated would happen, back in April 2022:

  • The recent spike in mortgage rates has created a so-called golden handcuff effect. 
  • Nearly 82% of homeowners feel “locked-in” by their existing low-rate mortgage, according to data from 
  • In the meantime, the shortage of homes for sale is pushing up prices.
So, anyway, I just had to get that off my chest.  I see it everywhere now and I see this "Well of COURSE that's what happened!" attitude from pundits and analysts who didn't foresee this coming at all, so I'm publishing this in lieu of cussing at my screen.

Anyway, market-wise, we have some interesting things to look at today.  Let's start with an old legacy chart I first published years ago, whose trend lines seem to find their way back to relevance again and again:

Next, we have another old legacy chart with a long-term support line:

Next, COMPQ:

SPX and the old (not nearly as old as the first two charts, of course) green trend line:

SPX is still undefined regarding the potential 4th wave:

And finally, the two most obvious very-near-term options:

Worth noting that in the event of sustained trade below Friday's low, and 4270-90 SPX would be the next meaningful support zone.  Trade safe.

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