Yesterday's home sales numbers drummed up a lot of excitement, with call activity zooming to levels not seen in a while. Despite all the hoopla, the rally seemed to lose steam throughout the day. The market is still somewhat overbought, even after last week's decline. It does not appear to me that the market is setup for much upside from here.
The fundamentals underlying yesterday's rally seem shaky to me. Weekly mortgage purchase applications, which are a real time gauge of housing activity, are down to levels not seen in nearly a decade. We are seeing the same type of hangover in housing that we saw after cash for clunkers. In the coming months housing numbers will once again show deterioration. I believe the December numbers will be a disaster, but those will not come out until January.
I am tempted to move to a net short position this morning. However, I realize that anything could happen in a holiday thinned trading environment. A gorilla with an agenda could really push things around and I believe that most agendas these days have an upward bias.