in Home Sales
How can I use this information?
The presumption that negative housing trends would be negative for the economy and hence detrimental to the
health of the stock market seems reasonable. But reason has its limitations and should be relied only upon after
supporting evidence has been found to be sound. What is generally assumed to be true often isn't. This is true in
the financial arena as well as in other areas of life. In the financial world, false assumptions can be exposed by
experimentation... by testing against history.
Get the facts before you act. Play with the odds, not against them. Abundant arguments for a correction do exist
as previous issues of Investment Tips have discussed. Thursday's home sales report, however, is not one of
them. The declining sales figures actually encourage one to buy rather than sell stocks.
SignalTrend's unemotional computer timing system is currently bullish, but it may change its buy / sell
signal in the near future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's
stock market timing system was backtested 100 years with excellent results!
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||This issue of Investment Tips
||Suggest a topic
||(Please select one.)
● Yesterday's 312 point Dow decline was attributed to declining home sales by major media.
● Historically, the stock market has actually performed better after declining home sales.
● After declines in home sales greater than 20% the Dow has gained 11.19%.
● After increases in home sales greater than 20% the Dow has gained 5.88%.
June 2007 home sales were 21% below June of 2006 sales. Please observe the two columns on the right in
the table above. When home sales registered a decline greater than 20%, the stock market averaged
an 11.19% gain. When home sales registered a gain in excess of 20%, the stock market's average gain
was only 5.88%. In other words, the stock market has gained nearly twice as much in the year following a heavy
decline in home sales than it has in the year following a strong gain in home sales. How can this be? Possibly the
government responds to declining home sales by stimulating the economy. It is often easier to determine what is
true than it is to understand why it is true. This is one such example.
|Are Declining Home Sales Bearish for Stocks?
Proprietary Graphs, Tables and Analyses - All Rights Reserved
|DJIA 12 Month Returns (1964 - 2007 without dividends)
|After Rise in
in Home Sales
|After Rise in
in Home Sales
Source of home sales data: U. S. Census Bureau - Manufacturing, Mining and Construction Statistics.
A decline in home sales is defined as a month in which the total U. S. sales of new single family housing units are lower than
that of the same calender month of the previous year. (i.e. If June, 2007 sales were lower than June, 2006 sales by more than
20%, then a housing sales decline in excess of 20% is recognized.)
The Dow closed down 312 points yesterday, July 26th, for a 2.3% decline. By mid-day today it was down another
170 points. In an attempt to provide our subscribers with timely data we sidelined the article previously prepared
for today's Investment Tip and replaced it with the article now before you. The financial press attributed
yesterday's stock market decline to disappointing home sales reported by the U. S. Commerce Department.
Declining home sales are clearly discouraging. However, does history support the assumption that declining
home sales are bearish for the stock market? This afternoon, SignalTrend staff wrote equations and applied
them to the 44 years of home sales data available from the U. S. Census Bureau. The answer was a resounding
NO! Actually, the stock market has performed much better after substantially declining home sales than after
substantially rising home sales.
|Link to Previous Issue of Investment Tips