Leading indicator-Another historic topping pattern?


Few industries are more important to the overall economy than the Housing Sector. The chart above looks at the Dow Jones Home Construction Index over the past 18-years and how it has peaked and bottomed ahead of the broad markets in the past.

The index rallied several hundred percent over a 5-year period in the early 2000’s. It broke support and the kissed the underside of new resistance at (1), where selling pressure started ramping up. Over the next few years, the index fell more than 80%. The broad market struggled to move much higher once the index started turning weak in the 2000’s.

Over the past 5-years, the index has rallied several hundred percent again, taking in back to just under the peak in 2005. Recently the index has broken below steep support and has kissed the underside of resistance, where selling pressure has started taking place at (3).

Did an important top in the Home Construction index again? It is too soon to tell. One thing the bulls do not want to see here is further selling pressure for this sector to place at (3)!


This chart looks at Lumber prices over the past 30-years. The trend in lumber prices remains up.

The strong rally over the past couple of years has it testing a cluster of resistance at (1).

If history is any guide, the broad market DOES NOT want to see the Home Construction Index and Lumber start heading lower from these key levels!



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Evil Liberals Wed, 05/23/2018 - 12:29 Permalink

Draw a Trend Line from the 2011 low to the 2017 low and extend it.

Wait for the price to fall a little further and then hit the extended line; price could then take off and we would have three significant pivots for validity.

everything1 Wed, 05/23/2018 - 13:38 Permalink

Well for starters you can throw out all the data from 2002-2008 because that was financially engineered data.

Then you can throw the rest of it out because of QE. 

No matter what happens, we will see a summer bump back upwards, money is flowing like gangbusters right now, which is one reason why housing is becoming less affordable, heck, interest rates are still historically low, low, low.

Which is of course a future of debt just not mattering like we thought it did, money creation is indeed an interesting thing.

Apartments are starting to be overbuilt a little bit right now however.

Fahq Yuhaad Wed, 05/23/2018 - 13:56 Permalink

OK, so let's see your forecast of the above chart daily for the next 6 months, or alternatively a table of predicted prices (left column: daily date, right column predicted closing price), based on your technical anal ysis. Right, thought you wouldn't.

lamont cranston Wed, 05/23/2018 - 14:40 Permalink

Have a friend in a family owned bldg supply biz just north of Charlotte. Over a drink or three last Friday afternoon up in the mtns, he showed me what lumber was doing. Every week $15-25/1000 board ft increase. Furthermore, huge truck driver shortage. He can't keep a decent inventory - when he gets a semi load, 75-80% of it is out to job sites the same day. 

He's scared sh*tless that it just crashes all at once, just like '08, and he's holding the bag with contracted deliveries several weeks out.