As the "green shootists" shout from the rooftops about the bottoming of the US and world economy; we think a technical and the Housing Index ($HGX) in particular offer keen insight as to whether one component of what led the US into the housing & credit market bubble...will lead it out. We hear very little about the housing stocks these days, for many are trading at very low levels and many do not believe they will come back anytime soon. Moreover, the current technical patterns may bear this out...no pun intended.
Quite clearly, the downtrend in place since 2005 remains in place as the 50-week exponential moving average remains the bullish-bearish fulcrum point. However, one could reasonably make the argument that prices are attempting to bottom at the 50-level as it has provided support on the past two occasions for prices to visit this level. The first rally attempt off this level faltered in major previous low overhead resistance at the 80-100 zone, did so within the context of the 14-week stochastic turning lower through it trading moving average. This led to lower prices and a second test of the 50-level - which was successful. But, major overhead resistance proved its merit a second time as well, with the stochastic turning lower as well. Hence lower prices are to be anticipated once again, and the 50-level support level is as good as any to target.
For us to become more "bullish" of $HGX, we'd like to see prices hold above the 50-level and the stochastic to turn higher - this would cause us to "dip a toe" in the water with an initial "buy." But the real key to being bullish stands on a breakout above the previous high and the 50-wema...something we think unlikely in the months ahead. Therefore, since we are "bettin men", we'll simply believe prices will form a base between 50 and 100 over the course of the next or so. In other words, there isn't much to like about the housing market or the US economy...really.
Good luck and good trading,
Richard
