NEW YORK, NY On the one hand, the market looks vulnerable. However, on the other hand the market is exhibiting resolve not seen in a while. The knee-jerk reaction to existing home sales data was typical in a general sense, but there was room there to spin a positive story. Ironically, I think that the report was as good as expected, although it gets more alarming when one considers all the efforts to make homes more appealing.

Existing Homes Sales Report

Initial observations by David Urani- Housing Sector analyst Wall Street Strategies, Inc.

Existing home sales increased for the second month in a row during May, at a rate of 2.4% annually, to an annual rate of 4.77 million; the consensus was looking for 4.82 million. Sales were characterized by month to month boosts of 3.9% and 9.0% in the Northeast and the Midwest, respectively, while remaining flat in the South and decreasing by 0.9% in the West. Sales of single family units increased by 1.9%. It was somewhat strange to see the sales decrease in the West, although we should note that the numbers are annualized to take seasonal effects into account; with the extraordinary conditions in the housing market today including tax credits, low prices, etc., seasonal effects are being mitigated to an extent.

On a non-adjusted basis, sales increased by 7.8% month to month, with increases in all regions. We are somewhat worried about the West in the months ahead, given that California was seeing a boost from a $10,000 state-enacted tax credit for home purchases; as of June 10, $88.3 million of the $100.0 million program was used up and when it ends, demand may falter. Given the California government's fiscal problems these days, the possible extension of the tax credit is questionable.

We were glad to see inventory come down by 3.5% for the month, especially after increasing by 7.9% in April; there is currently a 9.6 month supply on the market. Prices showed some signs of firming up, with the average increasing by 3.3% to $215,600, although the number is volatile because of mix changes month to month, and furthermore the nationwide $8,000 tax credit may be bumping up base prices. All in all the report is a relief, as a more negative report would not have been surprising. But still, it is not exactly evidence of a turnaround.

Afternoon Notes from WSS Research Desk

Brian Sozzi

One tidbit many are not talking about in the retail sector is co-tenancy clauses. In short, a co-tenancy clause is one contained within a lease agreement that allows a retailer to exit the contract should an anchor store (think Sears) close up shop or occupancy rates in the mall fall below a certain level. It's a very interesting topic that I believe many have not truly understood as it pertains to the mall REIT sector. Unfortunately, retailers on a broad scale do not breakdown for investors the precise amount of rent by quarter or year (it's lumped either in COGS or operating expenses depending on the company). The topic of rent has always seemed to me rather secretive; retailers won't go into great detail so analysts/investors just attempt to gauge directionally where rent outlays are headed.

That said, we track the amount of lease obligations retailers have in the current year and in ensuing years and benchmark it to cash flow trends. To read the remainder of the column, please visit www.wstreet.com.

Remainder of the session

Some of the really hard hit areas in yesterday's session are rebounding a little and that's good news, but the best action is still in defensive sectors. Medical device stocks are doing well, and biotechnology stocks are attracting the hot money crowd. Overall, I like the action today but the market continues to grasp for a catalyst or two. I like the action in homebuilder stocks, too. This is a hopeful session thus far.