Stocks: All Sectors Rallied in the First
Half of 2011 Except this One

Michael tells you the one sector that didn't rally in the first half of 2011 and which news reports you shouldn't be listening to.Don’t let them fool you…

Yesterday, the National Association of Realtors (NAR) reported that the number of contracts to buy previously owned U.S. homes jumped a surprising 8.2% in May from April. News reports were quick to call the bottom of the U.S. housing market and a few stock analysts started calling the new homebuilder stocks a buy.

Hold it. The only reason contracts to buy previously owned U.S. homes jumped in May was that April was such a pathetic month for home purchases. By the NAR’s own account, sales of previously owned homes dropped in May to the lowest level in six months with the median price of a resale home, which makes up 96% of the housing market, falling 4.6% this May from May 2010.

New home sales…they are in even worse condition. Sales of new homes fell in May for the first time in three months. The median price of new U.S. homes fell 3.4% in May 2011 from May 2010—the biggest 12-month drop since October 2011.

When in doubt, I look at the charts. And the chart of the Dow Jones U.S. Home Construction, which is comprised of the stocks of the largest U.S. homebuilders, continues to look very sick.

While all the stock sectors are enjoying a rally in the first half of this year, the Home Construction index is down 12% since January of 2011, with no sign of a bottom.

Homebuilder stocks…they will obviously be a bargain somewhere down the road. But for now, I wouldn’t touch them with the proverbial 10-foot pole.

Michael’s Personal Notes:

To all my Canadian readers who are celebrating Canada Day this July 1, and to all my American readers celebrating Independence Day this July 4, I wish you safe and fun celebrations.

The second half of 2011 is upon us. It promises to be more exciting and treacherous than the first half of the year. You can count on George, Mitchell and myself to try our best to help you through the uncharted choppy waters that the last six months of 201l will bring.

Where the Market Stands; Where it’s Headed:

As I predicted, the market is coming back nicely from an extremely oversold condition. We end the first half of 2011 with the Dow Jones Industrials having gained seven percent.

The bear market rally that started in March of 2009—I continue to expect higher stock prices from this tired and aging Phase II bear market.

What He Said:

“‘Home sales down 8.4%, could be the bottom,’ read the headline in last Friday’s USA Today. What do they know that I don’t? They know what realtors and their associations tell them and that’s about it. Unfortunately, the real estate news is predominately written by reporters—not real estate investors with years of experience to share. The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!” Michael Lombardi in PROFIT CONFIDENTIAL, January 31, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for worst of times ahead.