Sunday, October 25, 2009

Housing Index Diverges From The S&P

In my previous post I pointed out that some of the banks were beginning to show signs of weakness, well we're also seeing that take place in the housing index. Above is a daily chart of the homebuilding index (HGX) and in the lower pane is the S&P500. You'll notice since July both markets correlated perfectly making highs and lows together up until mid September where we are seeing an interesting change take place.

In mid September both the S&P and the homebuilding index made a high and sold off into early October where both markets began to rally. The S&P last week made a new swing high but the homebuilding index did not. This is called a bearish divergence and in my opinion could spell trouble for the homebuilders and the stock market if this weakness persists.

Does this mean that the S&P bull market is over? Is it time to short? Only the market knows but one thing I am alerted to is that the spine of the bull is beginning to weaken.


Anonymous said...

Good observation. The transports are looking ugly as well.

Anonymous said...

Have you considered the fact that this might work another way? I am wondering if anyone else has come across something
similar in the past? Let me know your thoughts...


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