🚨 Warning: Homebuilder Stocks on the Brink?

Before we delve into individual stocks, let's first take a look at the broader picture by examining three key ETFs in the homebuilder sector: XHB, ITB, and PKB. Recent charts have shown some concerning patterns for these ETFs. Rounded tops, which often indicate a potential market peak, are becoming evident. 🔄 Additionally, there's a bearish divergence on the Relative Strength Index (RSI) – this means that while the stock price is making new highs, the RSI is not, suggesting weakening momentum. The Moving Average Convergence Divergence (MACD) has also shown a bearish crossover, another red flag. ⚠️ Lastly, the bump and run pattern, which often precedes a significant downward trend, is becoming more pronounced. These are all reasons that led me to take a short position that was closed yesterday for some nice profit during the significant drop, but will there be a chance for another entry into a short position in the future? Remember to keep all of these on your watchlist.

Now, let's zoom in on the two largest holdings in the XHB ETF: CARR (Carrier Global Corp) and LII (Lennox International Inc). Both these stocks, like the ETFs, are showing similar bearish patterns. The bump and run patterns have both broken their trendline, and the RSI for both also peaked at a level marked by a vertical line where shortly afterwards the stocks got bearish crossovers on the MACD and fell significantly. Investors should be cautious and consider these technical signals when making decisions about these stocks. 🤔

This ratio chart compares the XHB ETF to the S&P 500. It gives us an idea of how homebuilder stocks are performing relative to the broader market. 🏠/📊 You can see that since April of 2022, homebuilders have actually been outperforming the S&P 500. Perhaps this is why Warren Buffett just loaded up on these 3 homebuilders.

By comparing XHB to the Nasdaq 100, we can gauge the performance of homebuilders against the tech-heavy index. Given the tech sector's significant influence on the market, this comparison is crucial. 🏠/💻 Yet again, we see homebuilders actually outperforming since April 2022. Given tech’s outstanding performance this year, it should not come as a surprise that this chart has not made new highs since the beginning of 2023. As you can see, we are directly in the middle of this bullish channel. The question here is, which sector will outperform in the future moving forward?

This ratio chart is particularly interesting. The TNX represents the 10-year Treasury yield. Historically, there's an inverse relationship between homebuilder stocks and Treasury yields. When yields rise, borrowing costs for mortgages also increase, which can dampen demand for homes and negatively impact homebuilder stocks. 🏠/💵 If yields are truly about to breakout and push higher as Bill Ackman suggests, then what appears to be a bullish channel since Q3 2022 may very well be a bear flag forming here.

Comparing homebuilder stocks against major indices like the S&P 500 and the Nasdaq 100 provides context. It helps investors understand if the sector is outperforming, underperforming, or moving in line with the broader market. The relationship with the TNX is even more direct. Homebuilders are sensitive to interest rate changes. Higher rates can lead to higher mortgage rates, potentially slowing down the housing market. By keeping an eye on the XHB/TNX ratio, investors can get a sense of where the housing market might be headed based on interest rate movements.

In conclusion, while homebuilder stocks have shown some bearish technical signals, it's essential to consider these in the broader context of the market and the economy. Interest rates, market performance, and other factors play a crucial role in determining the future of this sector. As always, diversification and thorough research are key. Stay informed, stay diversified, and happy investing! 🥳📚📈

_{Investment Intelligence Disclaimer: Investment Intelligence is a financial publication of general circulation and provides impersonal advice, not tailored to individual needs. The comments or statements made in our newsletter do not necessarily reflect those of Investment Intelligence or its affiliates and should not be considered as buy or sell recommendations. Unless explicitly indicated, the content of any email communication from Investment Intelligence is not an official confirmation of any transaction. The recipient acknowledges that any use of this transmission and its attachments is at their own risk, and Investment Intelligence accepts no responsibility for any loss or damage arising from their use. It is the recipient's responsibility to ensure the emails are virus-free. Please note that we are a public investor and do not seek any material non-public information. We do not agree to keep any information confidential unless pursuant to a written confidentiality agreement executed by Investment Intelligence. Investment Intelligence does not agree to any restrictions on our trading activity, except as specified in a written agreement. Affiliate Disclosure: Investment Intelligence may be affiliated with certain entities and may receive cash compensation for referrals of clients who open accounts with those entities. Investment Intelligence may also receive compensation from product sponsors related to recommendations. Please be aware that by subscribing to Investment Intelligence, you agree to the terms and conditions outlined in this disclaimer. If you have any concerns or questions, please do not hesitate to contact us. Thank you for being a valued member of our community.}