"Everyone has a plan 'till they get punched in the mouth" - Mike Tyson

March 12, 2013

Signs of rotation out of housing & real estate

The housing ETF XHB is displaying possible topping patterns in relative strength and price.  You can see the distribution on the last dip, followed by this weak push higher.  I would also include a chart of ITB, but it is a mirror image of XHB.

 Real estate has already broken a gradual relative strength support line dating back to the start of the housing rally in Q4 2011.  Price looks somewhat healthy, but the loss of this support line is huge.  I think of it as trying to skiing up hill.  Prices may still go higher, but eventually it will reverse.  This line break implies this will be a weak group on the next market decline.

Maybe this Real Estate chart says a lot more about interest rates than housing?  Maybe rates are leading real estate which is leading housing?  I'm not sure, but the signs of weakness and future under-performance are clearly present in both groups.

The key take away here is that the market has priced in very bullish expectations for the housing market and the group needs a rest.  Probably for a couple of market cycles (a year or two).  If you manage funds, you're portfolio is best served under-allocating this group in the intermediate future.

I'd love to hear any comments to clear things up/debate and will gladly chat on twitter/stocktwits.  You can tweet me @aro618.

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All ideas shown on this blog represent the authors opinion based on the data available.