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.

2 comments:

Anonymous said...

Good observation. The transports are looking ugly as well.
-DaveT

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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