Housing
Wednesday, October 15th, 2008

The housing sector was on our watch list a couple of weeks ago as the uptrend off the July low continued to move higher. The attempted break above 146 in September was looking bullish. Then along came the liquidity crisis in the banks. As you can see on the chart the break of the 20 day moving average would have been the exit point for any trades off the July low. Since that point the index has continued to move lower.



My how times have changed and so quickly. The break below 93 on the index is a potential short. This is a new low for the index showing continued weakness. The relative strength index is 36 and the stochastic is near 20. Both show momentum to the downside short term. The homebuilders index looks similar with a break below support. This opens the door to short the ETFs associated with the sectors or scan through the respective indexes looking for the weakest stocks.

There are nineteen stocks in the ETF. 18 of the 19 stocks are either testing the July lows or broken to new lows. This is an indication that the trend lower has momentum. From the perspective of being short, that is the type of momentum you want in your favor. Palm Harbor Homes is the only one holding support currently.

Strategy: Let the break confirm to the downside with a second close below support. Watch the ETF watch list for updates on any potential plays.