XHB Homebuilders Index Rising Wedge Negative Divergence Potential H&S and Island Reversal
The homebuilders are rolling over. The weekly chart is negatively diverged as well. The housing sector has enjoyed strong gains for many months so there is momo there that may need some sideways before the steady roll over. The red rising wedge is bearish. The green lines show a potential H&S pattern that will need a right shoulder. The neck is at 27.5-ish and head at 29.3-ish targeting the sturdy 25.5-ish support level below. Note the gap up that occurred to start the year on the fiscal cliff resolution. This created an island that price continues to sit on above 27.5. Therefore an island reversal may occur where price drifts lower to 27.5, then immediately drops back thru the gap to print 26.8 and lower. Of course price may simply trend lower and fill the gap instead. LL and WY were highlighted a week or so ago and they are receiving initial negative divergence spank downs. Ditto SHW and USG, and other stocks supportive of a housing recovery, which may be fading.
Note the increased interest in selling these days. Joe Sixpack the bag holder showed up in mid-December buying housing stocks with his Christmas money. The last few days note the up day volume followed by strong sell volume, then again, then again. That is distribution. Pump it to the retail guy and dump it. Projection is sideways to sideways lower for the days and weeks to come. Keystone currently holds SRS long, which is an inverse ETF to real estate, not directly on homebuilders, but it is in the neighborhood. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
How do you determine that these are retail investors going into housing? Not that they're at all a reliable source, but CNN MONEY ran the following article yesterday: http://money.cnn.com/2013/02/04/investing/housing-market/. They indicate that Hedge Funds and otherwise "big money" is making big bets on housing. I don't mind betting against the retail trader, but the Hedge Funds have much deeper pockets than I do.
ReplyDeleteINteresting Shane. Paulson has been losing his touch over the last couple years. There has been dramatic interest in buying up single family homes as potential rentals, also new REIT's, this behavior is starting to stink a little bit. The hedgies were the ones buying back in 2011 as the housing stock started to jump strongly. At the bottom you can see accumulation in the volume candlesticks as the funds build positions. The housing recovery ran for over one year and now at the top you see days and weeks developing with lower volume up days followed by higher volume sell days, this hints at distribution now where the funds are trimming back. The REIT's or other fancier instruments may have legs, but focusing on the USG, SHW, LL, WY, MHK, etc...aspect, gypsum, paint, lumber, flooring, homebuilders, real estate, the ingredients of a strong housing recovery, are all showing signs of exhaustion. It takes a little while for them to roll over.
ReplyDeleteTOL received a downgrade today, it has the same look as the XHB.
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