It is nearly impossible to call a market top before it becomes obvious it has already happened but the housing stocks have come closest in the past to doing it.
Which is why I keep an eye on LEN, KBH, DHI, MDC, NVR, TOL, PHM AND TOL. If all is not quite well with the market (and the economy for that matter), they are often the first to show the strain.
As far back as December of last year I posted an entry here at what I suspected might the first warning sign:
Gonna Huff and Puff and Blow Your House Down
And again in early February of this year, as the SPY began to break down, being led by the housing sector, I posted a warning here to also watch the banking stocks:
Housing stocks – the tails that wag the banking dogs
And finally this last April 24th, another post looking back at the history of these tell-tale stocks:
Housing stocks – Remembering 2008
Which bring us to today.
The ten-year bond rate went through 3% for the first time since 2011, with no sign of turning back, and it appears (obviously) the housing sector did not like it (see the chart panel below).
In 2007, this sector had a long sideways to up move after the initial hard break that had all the stock pundits (on CNBC and elsewhere) proclaiming the market pull back was over. The banks were even making new highs at the time (they are not now).
Then the plunge began into 2008.
The hard break in this sector this year has many of these same housing stocks down 20% already. And they have moved generally sideways — some with a downward bias — since mid-February before today’s four and five percent drops as it appears they are breaking down from their months-long consolidations just like last time.
On the chart panel below, see LEN, DHI, TOL and HOV particularly.
Is this the sign the bears have noticed this Goldilocks bull market has been eating their porridge and sleeping in their bed for far too long? There is a chance they are about to chase her out of the house running for her life into the deep dark forest of the time to come. And if so, the banking stocks will scurry after…
(click on the chart for a larger view)