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Random Thoughts: What the Homebuilders Suggest for the Broader Market

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They led the market higher and lower. Now what?

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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:
  • Yesterday morning, we discussed how the S&P had "room" to 1650 and it almost got there by the close. The 50-day moving average is now in play (1657) and horizontal support is directly below at 1650. Expect the bulls to pull together and defend 1650 on a slinky summer Friday; they know that the weekend sentiment depends on their ability to successfully do so.
  • One week does NOT a trend make but we would be wise to respect the broken trend-line in the S&P as one of many moving parts in our current construct.
  • So it's said, I'm still underwater on my snake eyes bet (December SPY (NYSEARCA:SPY) puts).
  • Is there a single trader who isn't conditioned to expect a late-day rally?
  • And by single, I mean "one," not "unmarried."
  • There are two sides to every trade and Oliver Pursche shared his reasoning as to why the S&P could trade to 1800 by February.
  • I still think that Klout is the definition of digital narcissism -- but sometimes I still look, when nobody is looking.
  • The BKX (INDEXDJX:BKX) 50-day comes into play at 63.35; as go the piggies, so goes the poke.
  • My wife used an Oakland Raiders towel as a bathmat outside our shower. I appreciate her subtlety as she begins to set my expectations as the NFL season approaches.

R.P.

Twitter: @todd_harrison

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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.

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.

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