Housing Stocks Going Through The Roof?
Updating the ups and downs in housing stocks.
Already sporting a blistering 7-week rally, stocks have continued their scent this week. One group aiding this most recent charge are the housing stocks. This group has been one of the more intriguing, and reliable, ones over the past few years from a charting perspective. That has prompted a series of posts from us during that time, including one today.
Let's flashback to a little over one year ago, in January 2018. At the time, the PHLX Housing Index (HGX) was on fire having, jumped more than 20% since breaking out above its 2005 all-time highs near 295 just 4 months prior. But while it looked as if the sky was the limit for housing stocks, we suggested that the group may be on the verge of topping out, due in large part to the presence of 2 key Fibonacci Extensions near the 362 area ("Is This Hot Sector Hitting The Ceiling?").
Sure enough, the index would top out just 7 days later, closing no higher than 365. Over the subsequent 6 months, the HGX would essentially drop straight down — to the tune of about -20%. That drop brought the index back down to the former 2005 around 295. After bouncing a handful of times off of that level, the HGX would break down below that critical level a few months later. In a post this past October ("Foundation Cracking In Most Shortable Sector?"), we highlighted the potential downside "targets" upon the decisive breakdown.
In the HGX, we identified the ~255 level as an eventual potential area of support and mean-reversion catalyst, should prices drop that far. During the market's fall plunge, it took less than a month for the HGX to drop nearly 15% down to that key 255 level. In late-October, we wrote that "Housing Stocks Drop Into The Basement" -- as in, we didn't see much more room to drop. And indeed, while the index would move marginally lower, the group would hold up relatively well as the broader market got routed into the end of the year.
Fast forward to now. As shown in the chart above, housing stocks have launched a sharp mean-reversion rally -- as we suspected -- along with the rest of the market. In the case of the HGX, it is approaching the old 2005 highs again, i.e., the level of its October breakdown. Here's a closer look at the index.
So what's next for this well-traveled group? Will it continue its sharp mean-reversion bounce and blow the roof off of its chart? Or is it almost time for the bears to reap the benefits of this group that has been so benevolent in offering opportunities to bulls and bears alike over the past few years? In a Premium Post at The Lyons Share, we discuss the next page out of our housing stock playbook that has served us so well of late.
Want to get a head’s up on our next move in the housing stocks? We invite you to check out The Lyons Share, a daily “all-access” pass to our research and investment moves. Given what may be a treacherous emerging market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!
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Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
