It has taken time to play out, but the homebuilders have finally staged a bounce over the past few sessions after becoming and remaining weak for quite some time. The issue, of course, beyond a mere oversold bounce is that the sector has suffered considerable technical damage over the past few months.
When you consider they had been bulletproof at one point this year, a true market leader, the reaction in the coming days and weeks will be telling if we are truly dealing with a major top at hand.
As I write this, the sector is fading off the highs, with major components like PHM struggling at its 50-day moving average.
Headed into the fourth quarter, the crux of the issue in deciding between if this is intermediate-term correction just about done before heading higher, versus a major topping out process, will center around if those 200-day moving average on the ITB and XHB ETF’s start to turn lower, indicative of a longer-term bull-to-bear reversal.
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