Update ...

S&P 500 is currently down 7.5, or 0.55%.  From a technical standpoint, after it hit the Bollinger Band's upper band that we discussed last week, 1380, it has dropped nearly 3%.  In addition, the McClellan Oscillator went from an overbought level to -131; then again this indicator declined all the way to -340 in May of this year.  The profit taking that we touched on has been taking place, partially helped by the continuing problems in Europe.  As conditions continue to deteriorate, yearning for and/or chances of a QE3 may increase which could help the equity market in the short term.

We also discussed the XH ETF last week, saying that the positive data regarding the homebuilding sector may be priced in.  Two companies within the XHB fund, Whirlpool (WHR) and Lennox International (LII) reported disappointing Q2 results this morning.  WHR is down 5%+ and LII is down nearly 7%.  We note that while XHB is down 1.2% today, things could change as 12 of the 35 companies within the XHB fund are reporting earnings this week.  We'll try to keep you updated on this.  By the way, the FHFA printed its May house price index about 45 minutes ago, up 0.8%.  This index says that in May of this year, home prices were at the same level as they were in 2004, which we believe indicates that home prices are still a bit too high given lack of job and wage growth.  Of course, this index is for the entire US, and recovery in some areas has been better.

From a macro standpoint, things are not looking any rosier.  UPS, another bellwether of the economy, disappointed the Street with its Q2 earnings report this morning as it missed on the top and bottom line.  It also cut its guidance.  UPS is down 4.2%. 

In addition, the Richmond Fed reported disappointing manufacturing survey results.  It came in at -17, significantly below the -1 estimates; contraction is continuing.  All of the survey's index components, besides wages and inventories, declined in July when compared with June.  In our opinion, it is not good news when shipments, new orders, backlogs, capacity utilization, number of employees, and average workweek hours all decline, and wages increase.  What makes it worse is that inventories increased at the same time.  Most of the components of the forward index of this survey also declined from the prior month.