Drop in Existing Home Sales Drops Stocks

The pins and needles upon which traders have been treading these last six months finally began to prick and tingle at the soles of their feet and the soul of investing. With stocks recovering mildly from Wednesday's selloff on news that unemployment claims had dipped - for the third straight week - the 10:00 am announcement from the National Association of Realtors that existing home sales for August had fallen 2.7% in August sent shivers through the markets, turning early gains into day-long markets.

The damage done by the one small piece of news demonstrated just how fragile this rally has become. Adding to the pressure was a stronger dollar, which helped keep stocks down, but did more damage to commodities. Overall, the damage was limited though broad, the Dow Jones Industrials outperforming the rest of the market, a sign that investors may have made a run to more quality names.

Dow 9,707.44, -41.11 (0.42%)
Nasdaq 2,107.61, -23.81 (1.12%)
S&P 500 1,050.78, -10.09 (0.95%)
NYSE Composite 6,862.31, -102.38 (1.47%)

Stocks closed lower for the second straight session, with declining issues leading advancers by a wide margin, 4899-1554, or, better than 3-1. New highs and lows both retreated, though highs remained the leader, 229-38. Volume was strong.

NYSE Volume 6,546,583,500
Nasdaq Volume 2,646,965,000

Commodity prices were affected negatively by the strengthening dollar, which, to many ordinary folks, is just fine, as the price of oil for November delivery dropped significantly, down $3.08, to $65.89, a 2-month low. Gold dipped below the magic $1000 mark, losing $15.50, to $998.90. Silver didn't do any better, dropping 62 cents to $16.30.

What's interesting to note is the interplay between the dollar, commodities and stocks, as they have been coupled together for quite some time. As the dollar has weakened, both stocks and commodities have risen, but, especially in the oil trade, some decoupling of stocks from commodities may be beginning to take place.

In reality, the two should have little to do with each other, since they are both asset classes. Wall Street may be outsmarting itself at the moment, as the long-term rally still remains in place for stocks, while commodities are arguably overpriced in this somewhat deflationary environment.

Tomorrow, traders will seek insight from durable goods orders at 8:30 am, followed by the Michigan Consumer Sentiment survey at 9:55 and new home sales at 10:00 am.

There are significant cross-currents at work, though the markets maintained their upside bias with the Dow finishing just above 4700 and the S&P finding support at 1048.