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The lesson is that if you are buying calls in hopes of a windfall from a takeover, be careful. You might not get exactly what you wish for.

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Tony Crescenzi's Blog: Bears Beware: Bullish Housing Data

Originally published on 11/22/2006 at 9:58 a.m. EST

For the first time since June, the Mortgage Bankers Association's weekly index on mortgage applications for home purchases has held above 400.0 (March 1990=100) for three straight weeks. In addition, both the four- and 12-week moving averages, which have been deeply below the one-year average all year, have moved significantly closer to the one-year average, indicating that at the very least, the rate of deterioration in the housing market has slowed considerably. Bears take note.

The slowing in the rate of decline in housing demand makes it likely that its negative contribution to GDP will begin to slow in 2007. In addition, with demand having picked up, the glut of home inventories will recede. It will take time, probably into 2008, but assuming production levels stay low, inventory levels should fall steadily in the months ahead. These data weaken the bear case for an implosion of home prices and the economy.

The steadying in home buying is likely occurring because of the recent decline in home prices. Recall that in the University of Michigan's consumer sentiment survey for early November, the UOM's index on home-purchasing conditions increased to 136 in early November from 129 in October, to its highest level since August 2005.