HOME DEPOT REVERSES YESTERDAY'S GAINS ON BAD HOUSING NEWS -- STOCKS TRY TO CONTINUE BOUNCE -- S&P 500 TRADING BETWEEN 20-AND 200-DAY MOVING AVERAGES

SELLS OFF ON BAD HOUSING DATA... An good earnings report in Home Depot was quickly erased by some negative news on housing. The 15-minute bars in Chart 1 show the schizophrenic action over the last two days. The nation's largest home improvement stock has fallen 5% to make it one of the day's weakest stocks. Encouraging earnings yesterday in Lowes, the country's second largest home improver, helped inspire a bounce in HD and other stocks. The main reason for today's drop in HD was news that housing starts and permits fell to a new record low last month. HD is closely tied to the trend of housing. Homebuilding stocks, which also helped lead yesterday's market bounce, are encountering some selling today. Yesterday's stock market bounce came on unusually low volume, which detracts from the price gains. Whether or not the market is able to build on those gains may depend to some extent on the ability of Home Depot to make up some lost ground this afternoon.

Chart 1

STOCKS TRY TO BUILD ON GAINS ... Stocks are trying to build on yesterday's low-volume bounce. The 30-minute bars in Chart 2 show the S&P 500 trying to clear resistance around 914 after regaining two-thirds of last week's selloff. A move closer to 930 would put the S&P 500 back in the vicinity of major resistance at its 200-day moving average. Short-term support is seen at 878, which coincides with its 20-day average. That's keeping the stock market in a short-term trading range.

Chart 2

KEY MOVING AVERAGES ... The daily bars in Chart 3 overlay three key moving averages on the S&P 500. The 200-day average (red line) sits just below its January high and represents a major resistance barrier. The 20-day average (green line) defines its short-term uptrend. A close below that support line (currently at 888) is needed to signal a deeper correction to its 50-day average (blue line).

Chart 3