Without question the housing stocks have been broadly hit in 2018. We can see the overall narrative with the pure play ETF, the ITB. It is lower by 34% from most recent 52 week highs, and perhaps the descent is wearing off, as we know moves tend to overshoot on both the up and downside. Of course one can not enter the space blindly, but there does appear to be some green shoots developing, that may signal a potential trend change. The group which was one of the best subsectors within the discretionary arena in 2017, and has been anything but in 2018. If the fund can hold the round 30 number on a weekly CLOSING basis, there have been some promising candles, most prominent the doji the week ending 11/16. If that figure is taken out to the downside all bets are off as that would record a bear flag breakdown with a measured move of 8 handles lower. On its weekly chart one must monitor closely a possible bullish MACD crossover which would be a first in more than one year, dating back to October ’17. On a volume perspective, we may have seen capitulation the week ending 10/26 as it was the second largest weekly volume in the last 5 years.
Builder/Bank Ratio Chart:
On a one week and one month look back period the financials have been the worst performers of all 11 of the major S&P sectors. Sure that is a short time frame, but bigger picture changes have to start somewhere. The XLF is now trading at levels not seen since September ’17, and for the ETF not to be making a stand after its second strongest weekly loss of ’18 last week is telling. It is following through to the DOWNSIDE losing another 2.4% this week heading into Friday. Below is the ratio chart comparing the builders to the financials, and one has to come away impressed with the bottoming action in October-November, and the subsequent move higher in December. And we will go over plenty of domestic names in this report, but one can even point to Brazilian play GFA on a 4 week winning streak up better than 20% to witness the change in sentiment. No question periphery plays have been hammered, like a SITE down 43% from recent 52 week highs or a FND lower by more than 50%, but the pure plays are looking to start ’19 off on the right foot.
Below is the chart of TOL and how we recently presented the name. It is known to develop more luxury properties, and that does not seem to have helped during the recent downturn, as we know a falling tide will take most everything down with it. It has certainly not helped their cousins in the retail arena as names like TIF, KORS or LVMHY are deep with downtrends too. The housing names seem to be finding a floor, no pun intended, as they are making valiant efforts to escape their misery recently. TOL, the former best of breed play, is still in the midst of a bullish ascending triangle, although it has fallen back within the pattern after approaching 34 numerous times since undercutting the level in September. It illustrates the importance of CLOSING prices. This chart here is from a couple weeks ago, but has since traded intraday above 34 a couple more times. If it can soon muster the strength to do so, the bears will most likely move to the sidelines.