RSSCatalysts to an Uptrend
By Jim Farrish | July 22, 2008 | 9:20 AM | 0 Comments
No big surprises as I scanned the five day price trend relative to the market to find financial ETFs hold the top spots. Homebuilders were in the top 15 with a nice bounce off the lows. (AMEX: XHB), (AMEX: ITB) and (NYSE: SAW) all gained 15+% on the bounce higher last week. This sector has been lost in the all the hoopla over the financials. (AMEX: KBE) gained over 25%)This sector is still one of the primary keys to the healing process of this correction. As long as housing prices continue to drop putting in a bottom is going to be a difficult process. The housing sector accounts for a very large part of our economy.
Looking at a chart of the housing or homebuilder sectors over the last three years is ugly. The bottom in January looked to be the catalyst to an uptrend, but failed in May as the sector broke the short term uptrend and moved lower. In July we moved below the January lows and established a new low. The bounce off that low last week still leaves the primary question – is this the bottom? I am unwilling to state it is until we see the decline in prices stop and that will be determined by the inventory dropping. The old standard of supply and demand is at work here. The current level of inventory for new and existing housing stands at 10+ months. If we could get it below six months and stabilize pricing we would see a bottom put in for the sector.
Unfortunately some of what ails the housing market is the financial sector. Lending is a challenge for those who want to buy homes. The Fannie Mae debacle isn’t helping the matter. Qualifying for a home mortgage has become a task unto itself. This will change as the balance sheet of banks improve, but that isn’t going to happen overnight. The challenges facing these two sectors were self induced, but everyone is paying the price. We can blame oil price for its share of what is happening in the economy, but the healing process is going to hinge on the health of housing and financials.
Add to your watch list XHB, ITB, KBE, (AMEX: KRE). Look for a pullback in the recent move higher and a base to form which should be the catalyst to establishing a long term uptrend for the sectors.
| 
|
