• 99 days Could Crypto Overtake Traditional Investment?
  • 104 days Americans Still Quitting Jobs At Record Pace
  • 106 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 109 days Is The Dollar Too Strong?
  • 109 days Big Tech Disappoints Investors on Earnings Calls
  • 110 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 112 days China Is Quietly Trying To Distance Itself From Russia
  • 112 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 116 days Crypto Investors Won Big In 2021
  • 116 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 117 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 119 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 120 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 123 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 124 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 124 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 126 days Are NFTs About To Take Over Gaming?
  • 127 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 130 days What’s Causing Inflation In The United States?
  • 131 days Intel Joins Russian Exodus as Chip Shortage Digs In
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

  1. Home
  2. Markets
  3. Other

Is This Lagging Sector Ready To Lead?


Fundamental And Technical Alignment?

From a probability perspective, the best investment ideas tend to be those with improving fundamentals and improving technicals (charts). On the fundamental side, the news has been improving for homebuilders. From Fox Business:

D.R. Horton Inc, the largest U.S. homebuilder, reported better-than-expected quarterly revenue and said orders jumped 38 percent, suggesting an uptick in housing demand. The company, which caters to people buying their first or second homes, said the number of homes sold rose 25 percent to 8,612 in the fourth quarter ended Sept. 30....Luxury homebuilder Toll Brothers Inc said on Monday its orders jumped in terms of both dollars and units for the first time in four quarters.

From Laggard To Leader?

The weekly chart below shows the performance of homebuilders relative to the S&P 500 Index. The trend turned against homebuilders in early March 2014. Since the October low in stocks, rather than lagging, homebuilders have been leading. The three steps required for a bullish trend change are nearing completion: (1) a break of a trendline, (2) a higher low, and (3) a higher high. The weekly higher high does not officially go into the books until this Friday, meaning homebuilders still have some work to finish.

Homebuilders Relative to S&P500 Weekly Chart

Similar improvement can be seen when comparing the performance of homebuilders to a basket of bonds (AGG).

Homebuilders Relative to Bonds Weekly Chart

We would hope that investing in homebuilders would be better than a strategy to short the S&P 500 (SH). Until recently, that was not the case as the ITB:SH ratio was making a series of lower highs and lower lows (see chart below). The trend is trying to turn in the favor of homebuilders.

Homebuilders Relative to Sorting the S&P500 Weekly Chart

How Do We Use All This?

Investing is about probabilities. The improving fundamental and technicals in the housing sector tell us the odds of success in that sector are also improving. It should be noted that even if the weekly trends continue and homebuilders lead, that does not remove normal retracements and pullbacks from the equation. The odds of good things happening in homebuilders are better today than they were in early October. From a bigger picture perspective, the improvements in the market's tolerance for risk outlined on October 31 and November 7 still apply.


Back to homepage

Leave a comment

Leave a comment