For the last couple of weeks, we’ve seen some pretty serious deterioration across the real estate space. And when I say real estate, I don’t mean new housing starts or new home sales or any of these other useless (for me) data points that we can’t turn into a trade. Last week, we pointed to the false breakout and momentum divergences in Homebuilders. And since then, the selling has picked up.
Today we’re watching the Dow Jones Home Construction Index and the DJ Real Estate Index ($IYR). These two charts come to us from Chris Kimble of Kimble Charting Solutions:
Unless one lives in a cave, most everyone knows Real Estate had a good deal to do with the economic and stock market weakness in 2007 & 2008. The DJ Home Construction index was a great “leading indicator” for the economy as it started turning lower back in 2005.
From 2008 to present, the Home Construction Index and IYR have reflected a ton of relative strength as they have gained over twice what the 500 index has off the 2009 lows.
Of late both of these Real Estate based tools above, hit a key Fibonacci resistance level while creating bearish rising wedges. At (A) in the above chart, both are breaking below support. For the first time in a long time, both of these reflected relative weakness yesterday, losing almost twice what the broad market, even though the Dow was down almost 200 points. One day does not make a trend, yet this weakness should be respected a ton!
Be sure to follow Chris Kimble on StockTwits and Twitter @Powerofthepattern
Tags: $IYR $XHB