Housing is one group that simply hasn't gotten it done this
year, with most of the stocks actually down on the year. This comes
on the heels of it being one of the best groups the past few years.
Last year, it was a group that I had a lot of success trading calls
on, as they usually went up. Most of the names were up well over
100% on the year, so sometimes it pays to take the easy trade.
Now things, they are a-changin'.
What stands out the most on housing stocks here is that the data
continues to be strong. Also my firm has seen a good deal of
optimism toward the group. I remember noting housing as one of my
favorite sectors heading into 2011 and nearly always, I'd get back
a list of reasons I was wrong. We're not seeing that anymore.
Remember, economic data doesn't lead stocks. In fact, nearly
always, it is the stocks that lead the economic data, meaning that
all of the strong data we're seeing now was probably already priced
in. Housing stocks were long ago telling us the housing rebound was
real, when most economists were doubting the recovering was nothing
more than a bounce off the bottom.
Also, in the options market, we've noticed continued heavy call
buying on the various names most of this year. Again, this is
drastically different than what we saw the past two years.
Then just today, I noticed a bullish
Wall Street Journal
article on housing stocks, which said, "With the shares having
taken a beating since May, it might be time to buy." That stands
out, given the very weak price action.
Think about it: Nearly any time someone notes positives on the
economy, they cite housing (I know this because I do it as well).
Lastly, throw in this over-the-top cover from
and the contrarian play on housing could be over.
Seriously, a house with money coming out of it? Wait, that sounds
did the exact same thing back in February!
Now compare that sentiment with what we saw in late 2010. Back
then, it was in vogue to totally reconsider even owning a home!
That is about a bullish statement as you'll ever find and was one
big reason my firm was bullish on housing back in 2011 and 2012.
So what does it all mean here and now? I'm not saying that this is
a huge sell signal on housing, but the easy money has been made.
Once everyone catches onto a trend, it is much tougher to get much
out of it.
Now check out this chart of the
iShares Dow Jones US Home Construction ETF
(NYSEARCA:ITB), a pure housing stock ETF. It is making a picture
perfect head-and-shoulders topping pattern. Should this resolve
lower, it could result in significantly lower prices.
One thing I'll note is that during the past few years whenever
we've seen some of these bearish technical patterns, nearly
everyone picks up on them. Then sure enough, the market bounces
hard. If more and more traders start talking about the pattern
above, be open to a sharp rebound.
The question I am continually asking myself is: With the overall
sentiment on housing stocks much more optimistic now, will this
pattern give way to much lower prices? I honestly don't know, but
wouldn't bet against if that neckline is violated.
This article by
Ryan Detrick, CMT,
was originally published on
Schaeffer's Investment Research
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