I’m going out for drinks tonight with a good friend who owns a real estate agency in Key West.
We’re going to talk about home prices, inventory levels, and mortgage rates… and I can’t wait.
The truth is, I’ve been thinking about the housing market a lot lately. I’m really into it.
Rose and I have decided to give the mainland a shot and are moving up to the Naples area this week. We’ll miss Key West, but we are excited about this new chapter in our lives.
We took our time searching for a place over the past year or so. In the process, I’ve spent countless hours on Zillow $Z and have looked at a variety of South Florida homebuilder communities— from Lennar $LEN to Taylor Morrison $TMHC and Pulte Homes $PHM.
I’ve dealt with Rocket Companies $RKT, with whom I have my first mortgage.
And this past week, it’s been all about shopping for furniture on sites like Wayfair $W.
Don’t even get me started about Home Depot $HD. I need a break from that place.
All of these stocks fall into the housing category, and I think they are all buys right now.
Housing is one of the most interest rate-sensitive groups in the entire market, so my view has everything to do with bonds.
The list of intermarket evidence supporting lower rates continues to grow by the day.
I wrote about the new highs for speculative growth stocks a few days ago. I don’t think that trend reversal sticks without lower rates. So, as long as it does— and for now it is, it tells me the market is expecting rates to fall.
Other rate-sensitive groups like banks and biotechs are trending well, too. JP Morgan is pressing on fresh record highs, and biotechs are the only thing working in health care these days. I believe the price action in these areas suggests lower rates are coming.
And how about the dollar?
I’m in the camp that this is a massive top in DXY, and dollars are going lower. Up until just recently, rates were moving in lock-step with the dollar. I think that relationship is about to reassert itself.
I’m thinking rates catch lower… and when they do, housing stocks should ramp and play catch-up with the broader market.
And let’s be honest… this action from homebuilders is just no good in the middle of a bull market. I understand there are some serious industry headwinds, but these are some of the most important risk-on stocks in the market.
Bulls need them to buy in and look more like semiconductors… and I think they will soon.
Here’s an overlay chart of these two procyclical groups:
SMH is a great illustration of the potential path forward for these former leaders.
I think homebuilders are about to dig in and fail this top. Just like we’ve seen from semis and so many other tops throughout the course of the current cycle.
Back in April, semiconductors appeared to be completing a distribution pattern just like homebuilders are now… but they didn’t. Bulls showed up exactly where they needed to, and semis have been some of the best stocks since.
Here’s a look at the Homebuilders ETF $XHB sporting a potential bullish momentum divergence in the lower pane:
As for the price chart, we have a VWAP pinch pattern playing out with XHB coiling at a critical polarity zone.
100 is technically the confirmation level, but let's keep it simple— I like round numbers. If XHB is above 100, look out for the homies. They aren’t dead yet.
In fact, I think buying this coil and betting on a failed top is one of the best trades on the sheets right now.
We’ve been adding some juice to the housing theme via our Breakout Multiplier system. We’re long RKT calls, and they’ve been working right out of the gate.
