As a career renter living in Northern California, I felt like I was missing out on a raging campfire of a good time in the housing market from 2003-2005.  Prices seemed way too high to me to justify purchasing a home.  My wife and I couldn’t afford anything decent…but also couldn’t figure out how others were buying into that overheated market.  Were we missing something?

Fortunately we stayed out of the market.  In hindsight it’s blindingly obvious that it was a bubble.  But it’s not so clear when you’re smack dab in the middle of the insanity.  In fact, it’s easy to feel like a moron when everyone around you is “making money” on houses that appreciate double-digits every year.

While prices in my local area (Sacramento) have eased off of their mid-decade highs, prices still look too expensive to me.  When compared with renting, it’s still no contest in terms of how far a dollar of rent will get you, versus a dollar spent on a mortgage payment.

Thanks to the pullback and current depression, we were recently able to rent a premium 2-bed 2-bath condo (with pool view and all!) for roughly half of what it’d cost to buy an equivalent type of unit.  Not to mention that we have no property taxes, or capital improvements, or any of the other home ownership woes.

Last week Barron’s published a piece called Renter Nation: The recession and shifting demographics will swell the ranks of people who will rent, not buy, housing over the next five years.  Yeah Barron’s!

Inspired, here are 7 reasons you should strongly consider renting over buying for the foreseeable future:

1. It’s still more expensive to buy than rent (in most areas of the US). Don’t listen to the morons who chide you for “throwing your money away on rent” – these are the same geniuses who are hundreds of thousands of dollars underwater on their homes right now.  To get a handle on the rent vs buy math, check out this excellent calculator from the New York Times (hat tip Carson for the heads up on this resource).
2. The trend in housing prices is still down. Don’t try to catch a falling knife!  So what if housing is cheap now – it’d be stupid to buy a house and watch it get cheaper.  Just rent for now – until we see an uptrend in prices.  As always, the trend is your friend.
3. Demographic trends are not favorable. The Barron’s article outlines this well, as does noted demographer and market analyst Harry Dent.  Dent sees the housing market finally bottoming out mid to late decade – short term he sees more PAIN.
4. You don’t get rich buying a house – anymore. That time is over – and good riddance.  Wealth is created by entrepreneurship – not flipping homes to one another.  If growing your wealth is your goal, you should deploy your capital in a more productive manner than a down payment on a home.
5. Mortgage obligations kill your life flexibility. We are in a doozy of a recession, or an outright depression.  You might lose your job.  You might want to start a business.  You might want to split town altogether.  At times like this, the more flexible your “personal burn rate” is, the better.  If times get tough and you need to cut your monthly spend in half, you can’t do it if you’re locked into a 30-year mortgage.  But if you’re renting, you can move into a shoebox to conserve cash until the storm passes.
6. Deflation is here – cash is king.  See #1 above – right now you want cash above all else.  Real estate is not the place to be as long as deflation is in control.  It may have it’s day once again, but not until the scale tips in favor of inflation.  Please review our deflation investing guide for full details.
7. Home ownership is a time suck, and it makes you lame. If you want to spend weekends doing yardwork, powerwashing your aluminum siding, and redoing the tiling in your kitchen – by all means be my guest.  But you should realize and accept that we human beings have limited time and limited resources available to us while we’re alive.  Time is our most precious asset – and we must choose how to utilize it to maximize our personal happiness.  For me personally, that does not include housework.

Renting has been very very good to me.  My free time on nights and weekends allows me to enjoy a full social life, while entertaining a busy professional schedule too – of running a time tracking software startup, and also regularly publishing my deflation investing blog.  I hope some of these thoughts help you break free from the American Dream paradigm that you must own a home in order to lead a fulfilling, successful life in this country!

Here – let’s take a look at the dominant short-term Fibonacci retracement levels currently in the S&P 500:

I started the Fibonacci Grid at the 2010 price high on April 26 at 1,219 and ended the grid with the July 1 low of 1,010.

From that, we see the respective 23.60% (a lesser-known number), 38.2%, 50%, and 61.8% retracement – all of which are standard in most charting platforms.

Does that help us make sense of the ping-pong?  Or at least, does it at least tell us where the walls are in the game?

Sort of – Fibonacci is not magic, but price does tend to react time to time from these levels.

Not to the penny, of course, but enough to give us a reference where we can monitor our lower timeframe charts, so we can see if there are any divergences or other signals that appear at one of the key price levels.

For now, the market is literally ping-ponging between the key 1,115 price and 1,090 level – both important Fibonacci retracements.

A pong above 1,120 likely pings the market to 1,140, just as a ping under 1,090 pongs the market to 1,060.

That was my attempt at ping-pong humor.

I suggest keeping these price levels handy in the week ahead.

(The chart above is also included in tonight’s Idealized Trades report for members).

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Jim Rogers was on CNBC earlier this week, sharing his thoughts and outlook on Q2 Earnings, the Euro, the future of BP, and more.

Some of my quick notes are here, with the 7-minute video below:

• He says don’t worry about Q2 earnings – that’s history.  Looking ahead, he’s skeptical that the good earnings news will continue without the aid of stimulus.  Plus the favorable Y-O-Y comparisons will dry up as well.

• The European stress test was a “total waste” Jim said.  ”All PR and nothing else.”  Haha!

• He refers to CNBC as a “PR agengy” that wishes stock prices higher!

If you’re a contrary minded investor like Jim, you’ll probably enjoy our free daily email newsletter, where we publish a daily recap of contrarian investing news and ideas.  We dig through the clutter of financial stories to bring you stories and insights you typically won’t find in the mainstream (mindless) press. You can sign up for this great (and free) resource here.

American consumer spending is a funny thing.  For years, throughout much of the 00’s, we watched in amazements as the US consumer went on the greatest spending binge in the history of Planet Earth.

First, we spent all the money we had.  Then, we spent all the money we didn’t have.  We borrowed against our credit cards, our homes, our future earnings – you name it, we’d borrow against it!

In 2007, when the credit crisis first hit, a permanent shift seems to have occurred in the psyche of the American consumer.  For the first time since World War II, the trend of more credit and more spending reversed.  The American consumer actually began to delever – a process that’s (painfully) continuing today.

The term “New Normal” was coined by economists and market observers to describe the newfound frugality that’s going to govern the lives of US consumers for years to come.

The other day, I learned that lipstick sales were through the roof – reason being is that women can no longer afford the big ticket beauty items, so they are splurging on the lower end accessories, such as lipstick.

Makes sense to me – the expensive items suffer, while cheaper items thrive, in this type of (dare I say it) – deflationary environment.

But according to some recent economic data, the change in spending patters may be far less rational than this.  The recovering spending addict that is the US consumer still reaches for his or her “fix” of the good life.

Bloomberg reports (hat tip JL for the story):

On a recent afternoon, Lucy Johnston, 37, an accountant from Tulsa, Oklahoma, could be found at the Fashion Show mall on the Strip in Las Vegas. She’s cutting back on shopping and eating out because of the recession.

“It’s really tough right now,” Johnston says. “I don’t do many full-on spa days anymore.”

Yet there she was, shopping and vacationing in Vegas with her husband.

“We’ve pulled out all the stops. We’re staying at the Bellagio,” she says.

Most shoppers are being described as “schizophrenic consumers”:

They splurge on high-end discretionary items and cut back on brand-name toothpaste and shampoo. Companies such as Cupertino, California-based Apple, whose net income jumped 94 percent in its last quarter, and Starbucks Corp., which saw a 61 percent increase in operating income over the same time frame, are thriving.

Mercedes-Benz is having a record sales year; deliveries of new vehicles in the U.S. rose 25 percent in the first six months of 2010. Lexus and BMW were also up. Though luxury-goods manufacturers such as Hermes International SCA and Burberry Group Plc are looking primarily to Asia for growth, their recent earnings reports suggest stabilization and even modest improvement in the U.S.

You can read the full piece about the “New Abnormal” on Bloomberg.com

To say that Starbucks and Apple are recession plays is a bit of a stretch though – according to Mr. Market himself.  Pulling up the charts, I’d say it’s more fair to call each stock a “reflation play” more than anything.

There weren’t too many folks lining up for venti lattes when the broader equity markets were tanking in 2008:

Source: StockCharts.com

Meanwhile Apple has certainly benefited quite a bit from the postponement of financial armageddon:

Source: StockCharts.com

If the equity markets turn down from here (and we think stock prices peaked in April), then I’m not entirely sold on the New Abnormal story as justification that these two stocks would weather the storm.  Last time they got hammered – so I don’t see why it’d be different next time around.

Though if you’re looking for a short play, I”d probably look for some sicker stocks than these two.  Stocks that didn’t rally much or at all over the last 18 months would be a great place to look.  While I’m not as wildly bullish on SBUX and AAPL as the mainstream press, I also wouldn’t want to be stuck holding a short position in the event that our broader outlook proves to be incorrect!

Let’s look closely at these two levels which have become almost exactly today’s high and low price.

Today underscores the importance of watching key daily moving averages in your intraday trading.

On the current down-swing, you can know in advance that there may very will be intraday support at either the 20 or 50 day EMA, which rest at 1,089 and 1,094 respectively.

You can set-up trade targets to play intraday swings to these levels, and then look to see if you can trade long for a potential bounce – particularly if you see little divergences or other buy-signals – which occurred at 11:00am CST.

So that takes care of short-term support, but what’s also quite interesting is that this morning’s pop-up gap paused and formed the intraday high at 1,115, which happens to be both the 200 day SMA (1,114) and the 50% Fibonacci Retracement (1,115).

That could have prevented you from rushing in to buy the market this morning until we cleared above 1,115  – which we did not.  No break, no buy.

On the down move, price found support at the 50 day EMA.

This is a great example of how intraday traders can use simple reference levels off the daily chart to enhance intraday trades.

So the market must either break above 1,115 – triggering a wave of “Popped Stops” and a short squeeze, or it must slice through support at the 1,090 level.

One of the two will happen now – it can’t stay between 1,115 and 1,100 forever!   Be prepared.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Let’s take a quick look at the formation of the bar and then look what happened the last time – June – when we saw this exact same pattern – it’s not bullish.

First, the daily chart for reference:

In this price purism chart of the SPY, I’m showing the three most recent “Engulfing” daily candle bars, both of which formed at key turns in the market swing.

The first was the insidious bull trap of June 21 that strongly warned of a major turn lower in prices -that occurred right on cue.

Recently, on July 20, we had a clean bullish engulfing candle that thwarted the down-swing in process, leading to the most recent swing higher in price.

Today, so far, we have a clean bearish engulfing bar.  The caveat is that the bar is NOT complete yet, so to make the signal official, we would need to see a close under $110.40.

Let’s now step inside the most recent bar and see the half-way point of the session, as of 11:20am CST:

A quick glance shows us how today’s bar gapped over the high of yesterday (barely) and then “engulfed” yesterday’s action fully, pushing solidly beneath yesterday’s low at the $110.50 level.

That’s how a Bearish Engulfing Candle forms.

To highlight the distance, I’ve emphasized the difference between yesterday’s high and today’s high, as well as yesterday’s low and today’s low.

If this signal plays out as anticipated, we could be seeing the confirmation of a turn lower in price.

To see what happened during June’s bull trap Bearish Engulfing candle, let’s step inside that bar:

I showed what happened the next day after the engulfing candle – so don’t include June 22nd’s info in the formation of the Bearish Engulfing Candle of June 21st.

We had a narrow range day (actually three doji candles in a row) prior to the bearish engulfing candle, which sent prices much lower on the downside resolution of the up-swing.

The main idea when stepping inside candles on the daily chart is to see how they formed on the intraday charts, which reveals a clearer picture of the supply/demand relationship between buyers and sellers.

Watch to see if today officially closes under yesterday’s low to complete the bearish engulfing candle, and if so, be on guard for lower prices ahead.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

It’s been a little bit since we checked in on what Dennis Gartman has to say about the economy and markets – so let’s get his outlook.

Here’s a 5 minute CNBC clip of Gartman weighing in on the taxation policies in Europe and the US.  He subscribes to Art Laffer’s supply side tax theory that lower taxes lead to higher tax revenues.  Hence, he doesn’t like the European decision to raise taxes one bit:

Tough to argue with a guy clamoring for lower taxes.  Though I subscribe to the Murray Rothbard school of thought that public sector spending should also be minimized (in tandem with taxation), if not eliminated altogether, for optimal economic growth.  But that’s a libertarian discussion for another day .

Also Gartman’s weighed in on gold recently – and he’s no longer a bull.  Just a few weeks after calling for a “parabolic rise” in the barbaric relic, Gartman is changing his stance – Benzinga reports:

Dennis Gartman said on CNBC’s Fast Money that he made a bad call when he said that gold is going to make a parabolic move higher.

He explained that gold is making new lows, and the up trend looks like it’s broken. Gold is also falling relatively to euro and British pound. He added that it looks like the game has changed and people are worried about deflation. Inflation is not an issue any more, and there are signs of the slowing of the economy and the non-growth of the monetary base.

I’ve subscribed to The Gartman Letter on a couple of previous occasions.  I very much enjoy his writing and trading insights – but you can also get turned around with the frequency with which he’ll change his positions and stances.  It is the hallmark of a good trader though – having the mental flexibility and openness to turn on a dime if the facts change.

I agree with Gartman that inflation is no longer an issue – in fact, in my opinion, it’s never been an issue at all.  The M1 multiplier is in the tank.  CPI prices are languishing, and heading lower – and that’s from a trailing indicator to boot.

More deflation jollies:

• Mish Shedlock: Deflation is Close, or Already Here
• Deflation Requires New Strategy For Investors
• Robert Prechter’s Deflation Investing Strategy

Finally, here’s a parting Gartman shot for you – on the latest earnings season, he says “buy stuff that, if you dropped it on your foot, it would hurt.”  He thinks China may slow, but doesn’t think it will slow by that much.

Is it any surprise that among metro areas with populations above 1,000,000, Washington DC has the lowest unemployment rate? The Wall Street Journal reports:

Among metro areas with populations over one million, Las Vegas had the highest jobless rate at 14.5% and Washington, D.C. and surrounding suburbs had the lowest at 6.4%.

That’s funny, because as my friend Carson is fond of saying, Washington DC doesn’t actually produce anything.

Vegas is of course a city built on easy credit and good times, so it’s going to take it right in the chin during times like these.

To see how your city ranks against others on the unemployment index, you can check out unemployment rates by metro area here.

Recommended viewing: Vegas tycoon Steve Wynn says he’d take Chinese politics over Washington’s anyday

Let’s look at the daily and then intraday charts of Crude Oil to see the combining of two trendlines, and a new – important – price level to watch for clues.

First, the Daily Chart of $WTIC Crude Oil Index:

Without getting into too much detail, I wanted to call your attention to the dual trendline cross at the $79.50 level as highlighted by the red arrow.

The horizontal line represents short-term overhead resistance at the $80 index level, and then the rising line represents the “Polarity Principle” of price, in that how the same price trendline can be used both as support (on the way up) and resistance (on the way down).

The other main point to watch is the dual EMA convergence at the $77 index level – so far, it’s holding as support.

So, one of the two HAS to break – oil can remain between $77 and $80 forever.  Either the dual trendlines will break or the dual moving averages will break.

As traders, we have to be prepared for either outcome, though it sure seems like price ‘wants’ to break to the downside.

Let’s now zoom inside the intraday chart for a ‘price purism’ look at the trendlines:

Viewing TradeStation’s @CL crude oil continuous futures contract, we can peek inside the formation of these daily chart trendlines.

Price hit a brick wall at the $79.50 area and this week is turning down sharply – right on cue.

I’m showing a very short-term rising trendline that ends at the $77.00 level – and price broke under that level today.  As of this writing, price tested the $76.00 level but then recovered into noon CST back to $77.00, so this will be the short-term defining line for traders to watch.

Back above $77 and we could see a vicious bear trap, but as long as price remains under $77, the chart seems to indicate lower prices ahead.

Keep up each week with detailed analysis not just on crude oil, but the five major markets (stocks, bonds, gold, oil, and the Dollar Index) by becoming a member of the Weekly Inter-market reports.

Watch $77 very carefully for clues to a trap, which would send price higher as shorts rush to cover (“Popped Stops”) which would imply a positive breakout for stocks, or alternatively if the chart signal carries forward, be on guard for possible lower crude oil prices, which would likely correspond with lower stock prices.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade