The following is just a small excerpt from my latest Weekly Strategy Session (please click on that hyperlink for details about trying it out). which I published for members and 12631 subscribers this past Sunday.
An examination of the housing and housing-related stocks can help us drive home several key points this weekend.
First, the homebuilders have been one of the weaker ends of the market of late, in addition to small and micro caps, as well as regional banks. On the homebuilder ETF daily chart, note the highlighted topping pattern which confirmed lower into the end of July, before the recent bounce attempt ensued.
To be sure, a bounce up to the declining 50-day moving average (dark blue line) over $31 could easily materialize, especially if the broad market upside reversal during Thursday night’s futures session proved to be a major false breakdown/bear trap.
Nonetheless, the fact remains that homebuilders have sustained serious technical damage. The ETF now has a declining 150-day moving average (red line) and a flat 200-day moving average (yellow line). Should that 200-day moving average now begin to slope lower, it would add credence to any notion of a major bullish-to-bearish multi-year reversal.
Put another way, the homebuilders are now in grave danger in the coming weeks of topping out since their October 2011 bull run began.
Consistent with our ongoing thesis about the current bifurcated market with divergences everywhere, the housing-related retail stocks refuse to follow the homebuilders lower.
In fact, retail housing giants such as Home Depot and Lowe’s have both worked off very long-term overbought conditions on their monthly charts, below. That need not guarantee they resolve higher. But it is worth keeping an open mind to the idea that stocks can correct in two manners: Through a price pullback, or through time (marking time by price grinding sideways).
Here, it was noted in these Strategy Sessions that HD LOW had unsustainably steep angles of ascent on their respective long-term charts. However, the purpose of that analysis was not to call a major top, but rather to help swing traders eliminate one of three potential scenarios in the near future: Up, down, or sideways. In that case, we eliminated “up,” based on the abnormally steep angles of ascent.
Now that those steep angles have been corrected through time, though, we are back to being open-minded about the potential for HD LOW to surprise to the upside from their respective monthly consolidations and technical bases, highlighted below.
Hence….
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