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Matt's Market Insights

May, 2016 Archives

Housing Continues to Provide Positive Economic Backdrop

By Matthew Kerkhoff

 

Housing plays an important role in our economy, but doesn’t receive as much attention as some of the more volatile components of the financial markets.

 

Estimates by the National Association of Home Builders (NAHB) suggest that housing’s combined contribution to GDP runs between 15-18%.

 

The contribution occurs through two different means: Residential investment (3-5% of GDP), which includes construction, remodeling and the production of manufactured homes. And consumption spending on housing services (12-13% of GDP), which includes gross rents as well as owners’ imputed rents.

 

This makes housing a small but integral aspect of the broader economy.

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The Ebb and Flow of Inventories

By Matthew Kerkhoff

 

Ask ten economists what causes recessions, and you’re likely to get fifteen different answers. Some will point to supply or demand shocks, policy errors, inflation, or sticky prices, while others, such as Hyman Minsky, will point toward fragility caused, oddly enough, by stability.

 

Each recession we experience is unique, and therefore it’s not surprising that identifying the root cause can be an arduous task.

 

But all recessionary periods share some of the same characteristics, and we can examine these similarities to identify periods when the probability of an approaching recession is higher than others.

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Corporate Profits Point to Lower Stock Prices

By Matthew Kerkhoff

 

Let’s begin briefly with an update on where we left off last Monday, with the S&P 500 in the process of tracing out a head-and-shoulders formation.

 

During last week’s action we saw the S&P rally back above the 2075 mark, only to fall back down and test the 2040 area on Friday. Support (at the dashed neckline) has held so far, but we’re not out of the woods yet. A couple of down days could put us well beneath that mark.

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Bearish Trend Alignment and A-D Line Peculiarities

By Matthew Kerkhoff

 

Last week we talked about trend alignment and before moving on, I want to briefly apply that perspective to the broader stock market. We’ll do this by taking a quick look at daily, weekly and monthly charts of the S&P 500.

 

Starting with the short-term view, here is what the S&P 500 looks like on a daily basis. This chart, in my opinion, exhibits more bearish signals than bullish.

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Watch for Trend Alignment

By Matthew Kerkhoff

 

A few years ago I wrote a two-part piece called The Fractal Nature of Price Trends. Admittedly, it was a little out there, talk of fractal geometry and chaos theory has a strange tendency to make people’s eyes gloss over.

 

But the concept discussed is fundamental when it comes to technical analysis. Understanding the fractal nature of price trends can help illuminate why many technical patterns do not produce their intended result.

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