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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Sell the Homebuilders into Strength as SPX 500 Tests Highs

Companies / Housing Stocks Apr 20, 2010 - 02:13 PM GMT

By: Richard_Gateway

Companies

Best Financial Markets Analysis ArticleAs the SPX 500 rallies from the shallow correction Autobottrading.com warned of on April 15, the homebuilders are also trading higher, to levels where risk for investors is great. The Philadelphia Housing Sector Index ($HGX) has breached this year’s highs and is up, as of this writing on April 20th, over two percent. Despite the bullish price action, the sector is reaching very long term resistance levels which will likely halt and reverse the bullish advance which began last March. Autobottrading.com advises investors, long term position traders, and swing traders to use this strength to exit positions in the housing sector.


The chart below is the weekly chart of ($HGX). The rectangular box represents multiple time frame resistance, a level where sellers are likely to gain control of the market. The box also represents an area where extreme optimism has entered this sector.  There is no reason to be optimistic about the U.S housing market, and investors buying at these levels will likely feel the pain of a sharp reversal of the trend over the next several weeks.

The Ishares US Home Construction ETF (ITB) has also reached levels where risk to investors is high. We believe a new high will soon be made in this ETF, and the breakout will very likely be false. We suggested selling (ITB) and associated equities as the ETF makes new highs over $14.35.

KBHomes (KBH) is likely to reach $18.05 prior to a significant reversal. Selling this stock into this level would be wise. We would expect that trade to $18.05 will result in a sharp move lower to $16.57 and possibly much lower.

Toll Brothers (TOL) is likely to reach $21.40 prior to a significant reversal. Selling this stock at this level would be wise. We expect trade to $21.45 will result in a sharp move to $19.92, but much lower prices are possible.

Ryland Homes (RYL) is the weakest of the group of builders. Signifigant resistance rests at $24.91, but we are concerned that prior to the expected homebuilding correction, (RYL) will roll over prior to reaching it’s resistance zone. Autobottrading.com will focus on this equity for short sales if our software indicates the likelihood of high reward to risk opportunity.

In summary, we urge long term investors to exit long positions in the U.S housing markets into the prevailing strength. Though we believe there will be breakouts in these Index’s, ETF’s, and equities, they will likely be false, thereby trapping the break out players and retail investors. Rather than buy the breakout, sell it, and park the proceeds for better opportunities arising in the future.

Autobottrading.com, nor the author currently hold positions in the housing sector.

Richard Gateway M.A, LPC. has studied human behavior for the last 25 years as psychotherapist, a trading coach and a money manager. He is a registered investment advisor and is vice president of http://www.autobottrading.com and provides analysis to http://autobottrading.com/blog

Copyright © 2010 Dr. Richard Gateway - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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