The boys from Gainesville reminded me of the existence of this index. Even so this index has been on my mind for the last year or two as I tried to sell and buy a property. Particularly here in Canada things seemed to have gone a little crazy lately but that still does not guarantee that you are experiencing a top.

In any event what we have here is a 5-wave move down from 2006 to early 2009, the low of the financial crises – probable a wave C of a large ABC correction wave 4, followed by a 5-wave fifth wave into a new high at the start of 2018. This index, by the way, does not only contain the homebuilders proper but also all the other elements that play a part in the joy of moving. Building products, furnishings, appliances and so on are all ingredients of this index. What you will notice almost immediately is that this thing double-topped at about $47, always a good time to step aside and smell the roses. All the more so if this top occurs as a thrust from a triangle, which, arguable, is the case here. This is so because invariable you will return to the lowest point in the triangle immediately after the thrust is complete, here at about $27 or so.

Ultimately a fifth wave retraces itself entirely as it moves back to the 4th wave of previous degree at around $7 or so. This assumption could, of course, be wrong if we are in a brand new bull market. In that scenario the up move from the 2009 low would have to be an initial first wave. These typically retrace a lot more than the 30%, give or take, that this index has done this year. It is a possibility that, for the moment at least, does not seem realistic. However if the Fed. and other CBs fail to raise rates we could be in an environment where hyperinflation could undermine all financial assets and boost all real assets. Time will tell.

See previous blog. We did not stop at 50% and are now approaching 61.8%. By now every investor/gambler knows that the housing market is rebounding, but is it?? Not according to these charts. 5down followed by and a-b-c rebound is not a recipe for further gains. This ETF should turn any moment.

So you listen to this guy on TV that KBH, the Homebuilders ETF (iShares) is a screaming buy, and to make the point a chart is shown of the performance over the last year, up a whopping 100% or so. A good reason NOT to buy. Next you figure homebuilders like Lennar, Pulte etc.etc. should be a good buy because you have heard ad nauseum that the housing market  is bottoming and just about ready to take off again. This may or may not be the case. Either way is is good to realize that this “homebuilder” ETF consists of only 27.63% of home builders proper. The bulk consists of companies like Corning, Lowes, Whirpool and so on, hardly a pure play if that is what you were expecting.

Looking at the chart above, it is clear that the rebound has taken the XHB to the 50% retracement level AND to the 4th wave of previous degree, both pretty well standard behaviour and more likely time to sell rather than buy. Also the pattern is that of a text-book  a-b-c with all 3 legs roughly the same as vectors, the signature of a counter-trend correction. Furthermore, looking at the details of the last moves it is clear that this last leg unfolded in a nice channel;

and can, without too much imagination, be counted as a 5-wave move which all c waves should be. We agree that this was a screaming buy a year ago but definitely not today. Both the RSI and the MACD are confirming this view. The moral of the story is that one should not believe every Tom , Dick and Harry “expert” that comes on TV and certainly not when you are desperate to find something to believe in and are as gullible as a 3 year old.