The Skyscraper Index

A skyscraper is a thing made from a sunny outlook. A skyscraper of record-breaking height is a thing made often from a mix of cheap money, debt and a fat scoop of hubris on top.

Somewhere a real estate man with dirt under his shoes and drywall dust on his shoulder must’ve had a hunch that skyscraper booms happen just as things go bust. But it took an economist to put it down on paper and create an index.

In 1999, economist Andrew Lawrence did just that. He created the Skyscraper Index. It showed that the tallest skyscrapers sprouted just as business withered.

Its ability to predict collapse is surprisingly accurate…

In a 2005 paper, economist Mark Thornton took a stab at vetting the index. He wrote that “the Skyscraper Index… does have a good record in predicting important downturns in the economy.” And most recently, Erste Group Research released a report in March that calls the track record of the Skyscraper Index “impressive.”

Here’s how it worked in Dubai. The Burj Khalifa took the crown of world’s tallest building from Taiwan’s Taipei 101 in 2007 — just before the onset of the global financial crisis. Here the Skyscraper Index worked perfectly. (And Taipei 101 itself fits the theory of the index too. Construction began in 1999, just before the tech bubble reached its peak.) (more)

Homebuilder Outlook Plunges, Reversing Spring Rebound

In a stark reversal during the heart of the spring housing market, confidence among the nation’s homebuilders dropped in April to levels not seen since January.

pnwra Home Construction

An association index measuring sentiment fell three points, changing course after seven straight months of gains.

It now stands at twenty-five; fifty is the line between positive and negative sentiment.

“What we’re seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September,” said National Association of Home Builders Chief Economist David Crowe in a release.

“This is partly because interest expressed by buyers in the past few months has yet to translate into expected sales activity, but is also reflective of the ongoing challenges that are slowing the housing recovery—particularly tight credit conditions for builders and buyers, competition from foreclosures and problems with obtaining accurate appraisals,” the release goes on to say.

The three components of the index each posted a decline, both current sales and sales expectations down three points and buyer traffic down four points from March.

Sentiment had been running high, as warm weather and an improving economy brought more buyers out to look at new construction. Stocks of the nation’s big public home builders have also been on a tear, some values up over 50 percent since last summer in anticipation of a big Spring.

“While builder and investor enthusiasm continue to surge, U.S. housing metrics are failing to keep pace,” according to a report from Fitch Ratings last week, in a prescient reading of the market. “Home prices are likely to remain soft if employment growth trends continue to be volatile,” adds Fitch’s Robert Curran.

Single-family housing starts and home sales fell below expectations in February, and home prices, while easing in their declines, are still falling according to several industry indices.

Expectations are for gains in March housing starts and a slight drop in building permits driven largely by multifamily. Those numbers are released from the U.S. Commerce Department at 8:30am ET Tuesday.

Consider This Before You "Sell in May and Go Away"

How would you like to take a six-month vacation?

It seems everybody is all geared up for spring break this month. But if you're a buy-and-hold [2] investor, get ready to take the next six months off.

You may have heard the Wall Street [3] cliché to "sell in May and go away." It may be a cliché, but it works...

The six-month period between May and November is historically the worst-performing period for the stock market [4]. According to the Stock Trader's Almanac, buying the S&P 500 on May 1 each year and selling on November 30 would have generated a negative return [5] over the past 60 years.

Not every year was bad, of course. Since 1950, the period between May 1 and November 30 has been positive 60% of the time. But the losses during the down years eclipsed the meager gains of the up years.

There's a lot of potential risk for holding stocks through this period, and not much potential reward. This is why it makes sense for longer-term investors to "sell in May and go away."

But shorter-term traders should stick around.

Volatility often picks up between May and November. So short-term traders have plenty of opportunities to profit [6] from both the long and short sides of the market.

Think about what we've seen over just the past two years. The S&P 500 hit its 2011 high last May, and it formed an intermediate-term top in May 2010. Traders could have made 20% or more by shorting the S&P 500 each year. Readers of Growth Stock Wire were forewarned here and here.

The S&P 500 also made important intermediate-term bottoms both years between May and November. Anyone who took our advice last October saw huge gains within just a few weeks. We saw equally impressive gains following a buy signal in June 2010.

My point is that long-term investors should heed Wall Street's warning to "sell in May and go away." Enjoy your profits so far this year. Take a few months off. Come back in November ready to buy.

Traders, on the other hand, are heading into a volatile environment filled with opportunities to profit from both the long and short side.

A six-month vacation sure sounds relaxing. But as a trader, I'd rather stick around and make lots of money.

This Speculative Sector Is Still Booming

One by one, the "speculative" uptrends are falling over like dominoes.

For some investors, the stock market is doing great. Early last week, the S&P 500 closed at its highest level since May 2008. Dividend-paying stocks and Apple (which is basically its own asset class now) have led the way.

But many of the speculative "boom and bust" sectors we write about so much in Growth Stock Wire are struggling.

Over the past three weeks, a number of "boom and bust" areas took a dive. Oil services stocks (OIH) plunged 9%. Gold stocks have plummeted to new 52-week lows. Emerging markets like Brazil (EWZ) and China (FXI) are down 6% and 5%, respectively. The big homebuilder uptrend has stalled. After rocketing 60% since October, the homebuilder fund (ITB) is unchanged over the past two months.

Amid all this "shaky" action, one of my favorite speculative sectors is doing fine – biotech stocks. While most risky sectors sold off the past few weeks, the Nasdaq Biotech Index gained more than 2%... and reached a new 52-week high.

You might be thinking, "2% doesn't sound like much... so what?"

Well, when a group of stocks moves higher (or even moves sideways) in a weak market, that's called "relative strength." It's a signal that there are "big money" investors behind certain stocks.
(more)

Chart of the Day - Liquidity Services (LQDT)

The "Chart of the Day" is Liquidity Services (LQDT), which showed up on Friday's Barchart "All-Time High" list. Liquidity Services on Friday posted a new all-time high of $51.91 and closed up 1.52%. TrendSpotter just turned long again on April 5 at $49.36 after taking a profit on a 2-month trade during February and March. Liquidity Services was last featured by "Chart of the Day" on the close of Sep 28, 2011 when the stock was at $34.85. In recent news on the stock, Stifel Nicolaus on April 10 reiterated its Buy rating and raised its target to $59 from $47. Oppenheimber on April 9 reiterated its Outperform rating and raised its target to $57 from $43. Liquidity Services, with a market cap of $1.5 billion, is a leading online auction marketplace for wholesale, surplus and salvage assets.

AAPL – First Real Crack Appears in Apple

If this is a normal correction in the markets (between 5-10%) then AAPL should visit $570 at a minimum. If the correction turns into something more severe (greater than 10%) then I could see AAPL falling as low as $450-$470.

The best reward/risk to short would be to wait for a retest of the $620 level.

Insiders Tell Jim Sinclair, $17 Trillion In QE Coming

No matter how the Fed tries to manipulate the markets through its orchestrated communiques, more ‘quantitative easing’ is coming, says ‘Mr. Gold‘ Jim Sinclair. And this time, $17 trillion more of Sinclair’s mantra “QE to infinity” is a done deal, according to him.

How does he know?

“How does anyone know an answer to a question? By being told. By having sources,” Sinclair revealed to King World News, Friday. “I’m half a century in the business. I’ve constantly kept up my contacts in a very unique and focused way. Quantitative easing was made clear to me, prior to Bernanke’s speech to the Washington group, prior to quantitative easing.”

The 50-year-plus veteran of the gold market first came to use the term “QE to infinity” back as early as the summer of 2009, suggesting he knew all along that the Fed had finally reach a liquidity trap and that it was inflate or die from then on.

Nearly three years later, there’s been no chink in that assessment, as evidenced by the Fed’s subsequent QE2 program, bogus currency swaps schemes as well as the most recent backdoor bailout of Europe through the Troika earlier this year.

“The next step in the formula is the fatigue of Asia in supporting bad Western monetary habits and QE to infinity to protect the long term 28 year up-trend line in the 30 year U.S. Treasury bond market,” he said in a Jul. 2, 2009 post.

A look at a 20-year chart of the 30-year Treasury reveals the trend line Sinclair had spoken of. Investors seeking clues to the dollars next major move could find in the chart of the 30-year bond.

Both the MACD and Slow STO indicate intermediate-term technical topping in the 30-year bond, and the trend line has held ever since the Jul. 2009 post.

As far as the outlook for the gold market, Sinclair is as bullish on gold as he’s as sure of more QE from the Fed.

The battle, he said, for the Fed is to fight the rise in the gold price for as long as possible prior to the next formal announcement of further Fed expansion of its balance sheet. A move through “$1,764 and they [Fed] lose control. That begins the move which is exponential.

“It’s a formidable challenge (keeping gold below $1,800). The true range of gold is $1,700 to $2,111, but these guys are going to try to fight it like nobody’s business.”

However, the fight will be lost and the breakout above the $1,700 to $2,111 range is inevitable following the next QE announcement by the Fed on the way to trillions more. That, Mr. gold has no doubt.

He concluded, “If we’ve done over $17 trillion already, do you think we won’t do another $17 trillion? Of course we will.”