Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag: Has Housing Hit Bottom?


Evolving chart patterns tell the tale.


Prof. Sadana

People are saying that housing sector has bottomed. Do the charts confirm this?

Minyan Alice

Minyan Alice,

There's certainly some positive sentiment brewing in the housing charts. Notice the 30% gain in the PHLX housing sector index since the middle of July.

Click to enlarge

Also, some key housing stocks made higher lows while the housing index hit a new low in July. Check out homebuilding stocks such as NVR (NVR), MDC (MDC) and Toll Brothers (TOL). Here's the Toll Brothers chart, which clearly shows that it made a distinct higher low.

Click to enlarge

So that's good news, and I would certainly keep housing stocks on my trading radar. I always like to follow the market leadership.

Click to enlarge

For instance, I remember the way homebuilding stocks peaked in fall of 2005, while home prices were still ascending. That was the first warning sign the prescient market gave to all those who would listen! The first cracks were felt in the housing sector in summer 2006.

With this preamble, let's talk about your question. Charts definitely show positive and encouraging action - but this could be similar to the bounce we encountered in the second half of 2006. We had a meteoric 25% rise in the index, only to falter and swoon to new lows.

While the recent price action is constructive, I would await further guidance from the evolving chart patterns in these stocks. I am looking for higher lows (and higher highs), a strong basing action or a successful retest of the old lows that we hit in July 2008.

Once we see evidence of continued accumulation in this consolidation action, we can feel more confident that the market expects the housing quagmire to start resolving itself next year. And don't worry, when that happens, traders will have ample time to make money.

Till then, it would be prudent to treat this merely as a rally that needs to consolidate soon.

On a closing note, let me leave you with the following words of wisdom from Jesse Livermore, who's considered the greatest trader ever: "It isn't as important to buy as cheap as possible as it is to buy at the right time."


< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos