Below are highlights from the NDW Morning Update Video for the morning of 10/26. Access the video on the NDW Morning Update Video page. 

• US equity futures are higher this morning with the Nasdaq leading the way to upside, up around 40 bps. Meanwhile, gold, silver, and crude oil futures are lower.
• US indices were up across the board yesterday. The Nasdaq-100 (NDX) led the market higher, gaining 1.09% while the S&P 500 (SPX) was up 70 bps. It was a strong day for semiconductors as the iShares Semiconductor ETF (SOXX) was up almost 3%.
• Crude oil was down almost 1.5% on Monday, but is still trading above $100/bbl.
• Yesterday’s research focused on the rotation out of technology and into defensive stocks this month. The Consumer Staples Select Sector SPDR ETF (XLP) is up more than 9% this month, outperforming technology by more than 14%.
• The Fed will wrap up its October meeting tomorrow. The market is currently pricing in about a 90% chance that it will leave the Fed funds rate unchanged at this meeting. But, the market is still pricing in nearly an 80% chance of at least one more 25 bps increase by the end of the year, meaning that a December rate hike is the likely outcome in the market’s estimation.
• Visa (V), Coca-Cola (KO), and Boeing (BA) are among the major names reporting earnings today.
  • V is 5 for 5’er and sits on four consecutive buy signals on its default chart but has recently moved into heavily overbought territory. The stock also sits about 10% away from its nearest level of support st $360.
  • KO is a 4 for 5’er that sits on a string of eight consecutive buy signals dating back November of last year. KO currently sits at $92 on its trend chart with initial support at $86, a level from which the stock has rallied twice since August.
  • BA is the weakest of the three – a 0 for 5’er that sits on three consecutive sell signals and its currently testing its 2026 lows.

There are plenty of takes out there regarding the US housing market from prices are high due to low supply to interest rates are the real problem, not prices. Many of the narratives are the same as they were a few years ago, however, the backdrop has changed significantly, particularly since the start of 2024. Before digging into economic data, let’s look at the technical picture for the State Street SPDR S&P Homebuilders ETF (XHB). XHB has a near-zero fund score and is trading at the same prices from the end of 2023. Since then, XHB has gained just 2.39% while the S&P 500 Index (SPX) has gained just over 60%. XHB has had a fund score below the acceptable 3.0 level since March. Despite some attempts to push higher last year, the fund was never able to regain the premier level of strength it had from late 2022 through 2024 where it held a near-perfect fund score from 2023 through most of 2024. On XHB’s 2-point chart, we can see the poor technical picture and the hefty resistance area that will be difficult to overcome. From a pure technical standpoint, it is a clear area to avoid for the time being.

Housing affordability has been at the forefront of public consciousness since the Covid-boom in housing prices. There are two primary aspects of housing affordability, home prices and mortgage rates. These two points are synthesized by the Salary to Afford a House data point which looks at the household income needed to afford a house at current home prices and mortgage rates. The calculation assumes that a household spends 30% of their gross income on their mortgage, tax, and insurance payment (Reventure.app). Salary to Afford a House is displayed in the table below, along with Median Household Income.

With data going back to January 2005, there have been three different regimes over the last twenty years. The housing bubble leading up to the GFC saw median household incomes unable to comfortably afford a house. Post-GFC until January 2022 was a period defined by more affordable housing in the US as prices had cooled off and interest rates remained low. Since the start of 2022, housing in the US would be classified as “expensive” with the salary to afford a house over 20% above median household income through present day. Interestingly, during these expensive housing market periods, homebuilders typically struggle when compared to the S&P 500 Index. Returns for XHB and the S&P 500 Index over the last three housing regimes since 2005 are also included in the image below.

While most people agree that housing is historically expensive, many argue that it’s expensive because supply is tight. This was assuredly the case from 2020-2024 as For Sale Inventory in the US in 2022 dropped from about 1,102,000 in February 2019 to 345,000 in February 2022, less than a third of what it was in 2019 and the low mark of For Sale Inventory. Furthermore, the three-month moving average for Home Sales as a Percentage of For Sale Inventory went above 100% as there was simply not enough For Sale Inventory to match demand at that time. The phenomenon crashed back to earth by early 2023 despite For Sale Inventory being historically tight as high prices stifled demand for homes. Both For Sale Inventory and Home Sales as a Percentage of For Sale Inventory are now back to pre-pandemic levels. While the lack of supply narrative was accurate a few years ago, supply is back to more normal levels. Secondly, inventory is trending towards higher levels. The combination of a historically expensive housing market, lackluster demand via home sales, and increasing supply, shows a clear imbalance in favor of supply in the US housing market in aggregate and will likely act as a headwind for housing related equities like homebuilders. On the bright side, year-over-year home value growth in the US has been below 2% since April 2024 and this bodes well for a cooling inflation picture if commodity prices can get under control.

The option suggestions featured here are pulled from the NDW Options Ideas tool. These are just a sample of the ideas that can be found there. The Options Idea tool contains numerous additional income and speculative plays. It also offers relative strength-based screens targeting the highest (and lowest) relative strength stocks and ETFs that have recently moved counter to their longer-term trend. To access or subscribe to the Options Ideas tool, click here.

Call 

The Coca-Cola Company (KO) Jan 15 $90 Call

Put

TTM Technologies Inc (TTMI) Jan 15 $90 Put

Income

Valero Energy Corp (VLO) Nov 27 $355 Short Put