Thursday, August 22, 2013

2009-2013: Real Estate and Housing Rally Analysis

In this post, we will be analyzing Real Estate and Housing sectors' rally from 2009 low. This analysis will help us better understand the nature of this rally, and its future directional implications.

The first chart shown below is of the Real Estate index. This chart clearly shows a 3-wave rally from 2009 low. 3-waves are corrective in nature. Therefore, the rally from 2009 to 2013 can be regarded as a market correction. Following chart also shows a major trend line from March 2009 lows. This trend line had so far contained the up-trend, but it has recently been breached to the downside. This also suggests that the up-trend in trouble.

Second chat, is also of the Real Estate index. In this chart one can see that Wave-Y ~= 0.61 x Wave-W. This is a classic wave Y relationship. Although it is not perfect, it is close enough. This is yet another reason to be careful about Real Estate stocks and the overall Real Estate market.

Finally, the third chart shows a 3-wave rise in the housing sector. This chart is of XHB (another housing ETF). The best aspect of this chart is that it has formed a very nice parallel channel since March 2009 bottom. Parallel channels, after a significant decline (2006-2009), typically symbolize bear flags. And are followed by resumption of the trend in the primary direction.

In summary, all of the above 3 charts suggest that the rally from March 2009 to May 2013 has been a corrective wave. And as long as Real Estate/Housing markets do not rally above May 2013 high, we should be on the look-out for another bear market in the housing industry. This would mean that housing prices will suffer further, which will in turn impact the overall economy. 

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