Random Thoughts: What the Homebuilders Suggest for the Broader Market

By Todd Harrison  AUG 16, 2013 10:42 AM

They led the market higher and lower. Now what?

 


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

The homebuilders have bucked the downside trend of late, rallying in the face of a declining market. This, of course, comes on the heels of a 20% decline in the HGX (INDEXNASDAQ:HGX) since the May highs, which happens to be the technical definition of a bear market.

Of course, we must keep these moves in perspective; the HGX rallied 185% from late 2011 into those very same May highs.  What goes around comes around?

Perhaps; there is a bearish head-and-shoulders pattern emerging, per the first chart below, which works to HGX 136ish, or 24% below current levels, through a pure technical lens.

This complex led the world higher as the housing bubble inflated, and then led it lower once it burst. Since then, the homies have underperformed the broader market, per the second chart below. 

Given this recent history, I was curious to view the price action between the S&P (INDEXSP:.INX) and HGX and thought that you might be, too -- particularly if the aforementioned head-and-shoulders pattern plays through.





Random Thoughts:

R.P.

Twitter: @todd_harrison

Position in SPY.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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