A Trade Crusher: Extremely Negative Pending Home Sales!

Today’s Pending Homes Sales reports have been released and they are weak. I have covered the lagging U.S. real estate market in depth over the past few months and today’s announcement came as a surprise even to me!

While the value of these metrics is certainly open for interpretation, the trend is bearish.

No doubt about it, the U.S. Real Estate Industry Is Slowing Down.

Real estate figures into nearly every sector of the U.S. economy. For 2016, real estate contributed $1.2 trillion to aggregate economic output, nearly 6% of GDP. The price action following the negative release has illustrated its importance to the entire U.S. equities market.

The Hard Data

As I mentioned earlier, the data is weaker than expected:

Event                                                       Previous                Projected             Actual

Pending Home Sales (MoM, August)       -0.8%                       -0.5%                -2.6%  

Pending Home Sales (YoY, August)         -0.5%                        NA                   -3.1%

No denying it, real estate for August came in way below expectations. The reasons are likely multifold, including the season and interest rate pessimism.

Today’s metrics showed MBA Mortgage Applications to be up dramatically from the previous release. But, pending sales are considerably down. This shows us there is a growing divide between housing demand and available financing.

The FallOut

Trading in the midst of an economic release can be a double-edged sword. Price action can work for a trade or against it. Today, it crushed the trading plan I issued earlier for the S&P 500. The negative numbers created bearish sentiment and a run of intraday stop losses.

Ultimately, money management is an indispensable part of intraday trading. When the market turns, having effective stop-out points is a big part of staying viable in the long-run. Today's stops below 50% and 62% retracements have saved substantial capital from peril.

Often, success is guaranteed by what you do not lose.