Investors were fortunately distracted by the Fed Chairman’s testimony before Congress, so little attention was being paid to the record low in New Home Sales. The January report showed a decline to a seasonally adjusted rate of 309,000 from a December reading of 348,000. Expectations were for a much smaller increase to 354,000. One reason for the expectation that there might be an increase in sales is that we’re finally past the lull when Congress was debating whether or not to extend the original program, which expired back in November. However, memories are short. The weather was terrible and traffic was down considerably. This could be the case for the next month or two, as bad weather persists. In addition, the data have suggested that motivated buyers have already moved. The uncertain economic conditions and poor jobs figures are setting the bar far lower for home sales. This annual rate of 309,000 is the lowest on record dating back to 1963. Because sales were so low, the inventory-to-sales figure jumped to 9.1-months from 8.0-months. The actual inventory of homes rose just 0.4%, so there isn’t really new inventory hitting the market. In fact, the number of homes under construction and for sale is at an all-time record low of 100,000.

In a way, this report played right into Bernanke’s hands. As expected, Bernanke emphasized that the recent discount rate increase was not intended to start the exit strategy. He even went so far as to use the words that everyone has been listening for, “exceptionally low levels of the federal funds rate for an extended period”. The market breathed a sigh of relief, and stocks rallied as the Dollar slipped back. Bernanke also admitted that the past two quarters of economic growth was due to “temporary factors”. He also expects the fiscal support for economic growth to “diminish later this year”. The move by the Fed to raise the discount rate did seem to take some of the steam out of the contentious questioning. To Bernanke’s credit, now that he’s been reconfirmed, he doesn’t seem to be willing to “take it” like he has in the past. He said that Ron Paul’s allegations that the Fed secretly funded Saddam Hussein, used cash to cover-up Watergate, and would potentially bail out Greece were “bizarre”. You gotta love it when congressional grandstanding gets taken down a notch.

The market certainly liked what Bernanke had to say. Rates initially trended lower on the poor housing data and Bernanke’s assurance that rates would stay low. They did tick higher after the results of the $42 billion, 5-year note auction. The bid-to-cover was a very decent 2.75, but the yield at 2.395% was a little high. 40.3% of the sale went to indirect bidders, also a decent number. As the yield on the two year rose, the rest of the curve went along for the ride. That didn’t seem to stop the bulls. The averages gained back what they lost the previous day after Bernanke completed his Q & A session. It wasn’t just price that rallied. The advances were well ahead of declines. Technology, Financials, and Retail led the way. Basic Materials lagged, as gold and other precious metals struggled. Energy stocks were slightly higher following a widely mixed inventory report. The Department of Energy reported crude inventories rose 3 million barrels, well above the 1.9 million anticipated. However, gasoline inventories fell 895,000 and distillate inventories slipped 591,000. That drawdown aided a rally back in crude to 480, which continues to provide technical resistance.

Politics as usual came into play. The Democrats put forth a modest jobs proposal of just $15 billion. The bill allows companies to write off expenses and gives tax breaks for companies that hire new workers. It was a “no lose” proposal for the Democrats. If the Republicans voted “no”, the Democrats could use this to say that the Republicans shot down a bill to help those on Main Street. If they garnered enough votes to pass the bill, which they did 70 – 28, then they can lay claim to having pushed through a proposal for the good of their constituents. It was only $15 billion and a win/win for the incumbent party.

There are two economic reports due out this morning, Durable Goods Orders for January and Initial Jobless Claims. Durable goods are expected to rise by 1.4%, but this is a very volatile number. Several reports on factory orders and manufacturing activity have been quite positive, so investors should have high expectations for a solid report. Next week we will be getting the data on February jobs. Expectations have been slipping, now looking for down 30,000 after having fallen 20,000 in January. One reason is that weekly jobless claims rose back above that 450,000 mark. Last week it was at 473,000. Today’s report is expected to show 460,000 claims. The magic number is 450,000. Even if we get some good news, the market is still in this week-long consolidation area, with the S & P hovering right around its 10-week moving average at 1109. Don’t forget that we get a truckload of information tomorrow, including a Q4 GDP revision, Chicago PMI, Existing Home Sales, and the Univ. of Michigan Confidence numbers. It’s a wildcard day, so don’t be surprised to see traders getting flat near the close. That may be short-covering or selling, but given Tuesday’s break, I would think there would be a fair number leaning to the bearish side heading into the close.