I've said it before and I'll say it again - the one thing worse than no rally is a failed rally (like today's). Rallies that start and then immediately fizzle cause more pain, anguish, and doubt than the market would have induced just by doing nothing that day. It's this pain and doubt that makes it all the more difficult to recover the next time stocks have an opportunity to do so. In other words, the bulls really shot themselves in the foot today, for a second time this week, no less. Only this time, the wound is critical. I'll show you what I'm talking about in a second. There's one news item we need to dissect first. The Rest of the Housing & Construction Story Don't know if you heard it yet, but the National Association of Realtors reported this morning that in July the nation bought existing homes (as opposed to newly-constructed homes) at an annual pace of 5.39 million units. That's big. In fact, it's real big. How big is it? It's the best pace we've seen since - and this isn't a typo - March of 2007, before the sub-prime mortgage meltdown made everything come unglued. Total inventory is picking up from its low levels seen in January, but it's still minimal at 2.28 million homes. Home prices are still on the rise too. Now, there are a couple of ways to process this information. One of them is, you could simply take it at face value and say it's just more evidence that the housing market's bigger growth trend is the real deal. Or, you could completely flip it around and say the only reason housing sales were so strong last month was because rates are rising, and anybody who was on the fence went ahead and pulled the trigger before interest rates moved any higher. There's a third option, however, that's the one I'm claiming as my stance.... last month's surge in existing home sales is a hybrid of panic-buying pressure, and a reflection of legitimate, growing demand. Truth be told, nobody really knows the full reason why homebuyers were going nuts last month. We won't even know if July was an anomaly until next month when we either see another strong number, or see a complete reversal. That's why I'd simply suggest not feeling like you have to 'do' anything with the number at least until we get a clearer picture. The new home sales figure due on Friday will go a long way in providing that clarity. With all of that being said, there's a detail here that I need to pass along to you simply because it IS a big deal, and NOBODY else seems to be explaining it adequately (in my view). While the housing and construction market has been broadly strong despite the recent stumble, it's multi-unit housing (apartments, condos, etc.) that are driving the bulk of the growth. Just for some perspective, in July, single-family home sales were up 6.3% from June, and up 16.4% from July of 2012. Single-family home prices were up 13.5% over the past twelve months. Not bad, huh? Yeah, well, it wasn't anywhere near as strong as multi-unit housing was in July. Last month, condo and co-op sales were up 8.6% from June, and higher by 23.5% compared to the year ago number. Condo and apartment prices were up 15.5% from July of 2012. And that kind of relative strength (multi-unit versus single-family) isn't a new phenomenon either. It's been that way for a couple of years, and I think it's going to stay that way for a while as the luster of McMansions - and home-ownership in general - was lost in 2008. That's not to say single-family home sales are terrible, because clearly they're not. They still make up the lion's share of total real estate sales. It's the multi-unit arena that's doling out the most growth, though. As for what you can 'do' with that information, it's tricky. Some homebuilders are doing just fine building single-family houses, while others are still struggling. Some builders specialize in multi-unit developments, and they're doing great. The trick is finding out exactly who does what, and how well they're doing it. It's worth the effort though, even if it means choosing a rental REIT rather than a builder. With all of that being said, the best advice I can give you about it is to check out what John Monroe over at the SmallCap Network Elite Opportunity said about housing and construction stocks today; almost the whole edition of Wednesday's SCN EO was devoted to the topic. He names names too, giving some specific possibilities of ways to trade it. I can't tell you what they are, because it wouldn't be fair to current subscribers to simply put it here in the free newsletter. But, I can tell you how to find out for free if you're not a member of the SmallCap Network Elite Opportunity family yet - just sign up for the free two-week trial. Everything he said about the housing market and its stocks will be right there waiting for you. Here's how. Or, copy and paste the following link in your browser: http://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=SCN+Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/ The Bears Keep Chipping Away Not good. I don't mean the market's 0.58% dip today. While that wasn't good, we've seen worse. We can live with that. What's not good is the fact that the S&P 500 was actually up a bit today, but couldn't hang on to those gains. These teaser rallies just underscore how tough things are for the market right now, and discourage investors from even stepping up to the plate until the skies are completely clear. Thing is, our skies may not be completely clear until weeks from now. Oh, and care to guess where the rollover started? Right at the 50-day moving average line (purple) I was telling you about yesterday. That IS the ceiling now. It has been for three days straight. Unless/until the index can hurdle it, there's no need to have the bullish discussion. Take a look. You can also see something even more alarming than trouble at the 50-day moving average line. The S&P 500 closed below that key level of 1645, confirming its weakness. Throw in the fact that the VIX had no problem scooting back above its upper Bollinger band, and there aren't too many ways of interpreting this other than stocks being in trouble. Now, I don't say any of this to frighten any of you. Frankly, it's not that big of a deal. Stocks should pull back occasionally, and even in the worst-case scenario right now the market would struggle to post a double-digit decline. I just want you to know the ever-changing odds of that dip, so you can do something about it if need be. On that note, I'll remind you my first 'checkpoint' target is still the S&P 500's low of 1560 from June. And on something of a side note (and since it may have bearing on what's going on right now), August and September are not only - on average - two of the weakest months of the year for stocks, they're also the weakest two consecutive months for the market. The average August is basically flat in terms of returns, while the average September typically doles out a 0.8% loss. Point being, even if it's just a self-fulfilling prophecy, it's not unusual that it's happening here and now. Just go with it, and use it as an opportunity to get into some new trades in late September and early October.