Friday, August 16, 2013

Housing Market - Near Term Picture

Today's housing start data was very upbeat, and it would result in a lot of optimism towards the housing recovery. It seems like more people are buying new houses, even with higher interest rates. This seems to be contradicting news because few weeks ago, main stream media was suggesting that higher interest rates will choke off housing recovery.

The above mentioned analysis suggests that housing is back and it will not be derailed with higher interest rates. However, housing sector's chart pattern does not look good. There is something fundamentally wrong with the market.

As we know that Stock Market prices in the future 6 months out, stock price pattern are a good indicator of future health of an industry. Right now, the pattern in the housing ETF is suggesting that housing market is topping out. And recent good news might be followed by bad news in the future.

Following chart is showing a head and shoulders pattern being developed in the House Builders ETF. Head and Shoulders are typically considered to be a topping formation, and their completion results in significant market declines. Head and Shoulders pattern show distribution area, where long-term investors start selling their positions and new entrants into the market, start buying based on the media news and economic reports.

Head and Shoulders pattern, like any other technical pattern, takes on even more importance when it is not recognized by the majority of media. This is the current situation with Head and Shoulders pattern in ITB. I have hardly found a single media outlet or blog site, which is showing this pattern. Therefore, we should be watchful for a breakdown in the housing stocks. This breakdown will be accompanied by bad economic news related to the housing industry in the near future.

At the same time, Real Estate index is also sporting a Head and Shoulders pattern. This pattern is also almost complete (shown below) and it does not bode well for the overall economy.

To summarize, housing industry and Real Estate industry are the main stay of the U.S. economy. If the housing/real estate industry starts to suffer, it will result in a downtrend in the overall U.S. stock market and the U.S. economy. A similar situation arose in 2005-2007 time frame, when housing/real estate stocks peaked before SP500. Everyone knows about 2007 peak but hardly anyone knows that the real peak started with housing & real estate industries' underperformance. Therefore, it is crucial to keep an eye on these two sectors.

In the next update, we will analyze housing in the intermediate term.

Custom Investment Analysis
As you know UST performs custom consulting analysis per user's specific needs. For example, Gold analysis sent to clients. Recently a similar analysis was performed for a client regarding housing industry to make investment decision. If interested in custom analysis, please send an email to

IPM Model Update
IPM Model again predicted the market top on the exact date - August 5 (by the grace of God). Next IPM Model update will be emailed to subscribers on August 19, 2013. If interested, subscriber below (1st month is free):


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