June new home sales were a pleasant surprise--and traders sold right into it.
This is the first time in a while we have seen selling in the face of good news; no one is quite sure if this is an aberration or the start of a trend.
The key is for stocks to show resiliency, and that is exactly what is happening: they are now coming off their lows.
There are two factors cited for the mid-morning selloff:
1) stocks in certain sectors (tech, retail, etc.) have run up so much in the past two weeks that traders are taking profits; indeed downgrades of companies like Coach ,Amazon , and removal of Lowe's from Goldman Sachs' conviction buy list were prominent this morning. Indeed, the weakest sector was the former market leader: tech.
2) there has been some concern that the huge, $200 billion plus series of Treasury auctions could create some competition for stocks; early results from the short-term debt auction have shown strong demand.
Meanwhile, the good news on new home sales (which are contract sales, not closing sales) is:
1) sales beat expectations
2) inventory levels declined to an 8.8 month supply (from 10.2), the lowest level since Oct. 2007.
The bad news is that home prices are continuing to decline--down 12 percent year over year, 5.8 percent compared to May.
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