SOME INDICATIONS FROM THE HOUSING SECTOR THAT SHOULDN’T BE IGNORED
I'll start by saying that I continue to be impressed by the manner in which key indices are forming a tight consolidation right above or below key levels of resistance/support. In a bull market of this nature, these types of patterns have a strong tendency of resolving to the upside. I don't think this one will be any different.
I continue to believe that one more push up will begin a choppy sideways consolidation into April/May, at which time some real downside volatility will become apparent. I am, however, not closing myself off to the possibility that the strength and power of this market is being greatly underestimated by the vast majority, myself included. I think the next push to the upside will give us some very real indications of what kind of monster we are dealing with here.
There are subtle (or not so subtle depending on how you choose to look things) hints in the markets that there is something very real bubbling beneath the current economy. Particularly in the housing sector. As we all know, home prices and the numerous shocks created as a result of America's piggy banks being broken and raided by market forces has caused a good deal of the economic strife we are dealing with today.
It is only natural to assume a housing sector that can actually stand on its own two feet would be a positive for the overall economy. And stand on its own two feet is all we can ask for. The days of double digit percentage returns in home prices are gone and won't be coming back anytime soon. However, a housing market that can work through excess inventory by creating a comfortable environment for would be home buyers to make a commitment is not that far out of reach.
The key in creating that comfortable environment is the promise of increasing job creation and stability in the employment market. Nothing else will influence the market as graciously and generously as a sustainable uptick in job creation. Unfortunately, predicting job numbers going forward is no different than predicting stock prices. They do fluctuate. But there have been signs of promise recently. Take the 4 week average of jobless claims which is sitting at a 4 year low currently.
And then we have my favorite, which is market action. What is the market telling us with respect to housing? Let's look at a few key components. Home Depot, Whirlpool and Bank of America. All companies that were shelled by the housing debacle. They are certainly singing a different tune now and it is convincing enough of a tune that it has me believing.
click chart to enlarge
HOME DEPOT
WHIRLPOOL
BANK OF AMERICA
At the very least, I think we are in for a period of sustainability. Call it a foundation, if you will. From that foundation opportunities will develop that reward you for being bullish on the US economy in general. Housing is just one sector. You have to bear in mind that we have essentially been in a 12 year period of a sideways market. There are numerous sectors that will benefit from foundations of this sort being built from which a sustainable progression will develop.
The seeds have been planted.
