Beauty is in the eye of the beholder. It’s a sentiment we’re all familiar with. Something that may appear beautiful to one person may not appear beautiful to another.
This is the situation we find ourselves in today when it comes to economic news and housing data.
For some, the U.S. economic news is encouraging because it shows that, while the economy is not growing by leaps and bounds, it is still growing. However, for others, it is discouraging because U.S. growth may not be enough in a global economic environment in which both the Chinese and European economies appear to be slowing down.
For some, the U.S. economic news is encouraging because it indicates that the Federal Open Market Committee may choose not to raise interest rates in September. For others, it is discouraging because it shows that the FOMC has no other choice but to start raising interest rates so it can be prepared for the next economic downturn — even if raising rates is the trigger for that downturn.
For example, when the Census Bureau released the latest building permits data, some analysts reacted negatively to the news that building permits missed expectations and fell by 16.3% compared to the previous month — the biggest drop since June of 2008.
At the same time, other analysts reacted positively to the news that the trend of building permits growth continues to rise — with the July 2015 number beating the July 2014 number by 7.5%.
Please note that the second chart is exactly the same chart as the first one. We simply drew a different colored arrow on each one. It’s amazing how much an arrow on a chart can change ones perspective.
The different arrows highlight important information on each chart, but which arrow you decide to focus on is completely up to you and will most likely have an impact on the investment decisions you make in the future.
That is why it is important not to solely rely on one data point when making investment decisions. You need to see the big picture.
For instance, if you combine the building permits data with the housing starts data the Census Bureau released, you will see that the housing market is still looking strong.
Housing starts grew 0.2% month-over-month and a whopping 10.1% year-over-year.
Next, if you combine the building permits and housing starts data with the quarterly earnings announcement that Home Depot (HD) released this week and the bullish reaction Wall Street had to that news, you will see that the strength in home construction is spreading through the rest of the housing sector.
Of course, the housing sector is just one of many sectors of the U.S. economy that analysts and investors are paying attention to.
Investors are wondering if the flattening yield curve is going to have a negative impact on the financial sector. They are wondering if falling oil prices are going to continue strangling revenue growth in the energy sector. They are wondering if lower Treasury yields are going to be a boost for the high-yielding dividend payers in the utility sector. And they are wondering if slowing growth in China is going to continue to drag the basic materials sector lower.
That’s just a taste of the myriad questions Wall Street is facing today.
We continue to see a broad, volatile consolidation range in the S&P 500 because beauty is in the eye of the beholder, and nobody on Wall Street seems to agree on what is beautiful right now and what is downright ugly.
We don’t expect that to change in the short term.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here. You can learn more about identifying price patterns — including bearish continuation patterns — and using them to project how far you think a stock is going to move in their Advanced Technical Analysis Program.
