Need Help?  

1-888-998-3548

Homebuilder Strength Could Mean Big Market Upside Potential in 2012

Scott Redler
Jan 10, 2012, 5:09 PM

(The following analysis was used by Jim Cramer for a segment on his show, Mad Money. Check out the segment below.)

 

Off the Charts with Cramer: HGX
Tuesday, 10 January 2012 6:45 PM ET
Mad Money's Cramer turns a technical eye on the HGX to see what the charts indicate about the resurgence in housing, as interpreted by Scott Redler, T3 Trading Group chief strategic officer
Source: CNBC.com

 

Typically the stock market leads the economy by six months. Could we now be seeing signs in the market that the US economic recovery will pick up steam in the second half of 2012? The market is rallying the face of a weak Euro and strong dollar, buoyed by slowly improving economic data.


The home builders are another very encouraging sign right now. No one knows why this group is so strong right now. Perhaps they are indicating a bottom in the housing market on the horizon. This group has been very battered and bruised., so at least an uptick was not unexpected. Still, the rally has been more potent to the upside than anyone would have thought. An igniting move like this usually leads to more upside.

 

Technically we have seen five higher lows on the Daily Chart of the homebuilders ETF (XHB), which we haven't seen in several YEARS. The ETF is also above all major moving averages, another technical positive. If this rally continues to hold in the homebuilders, we could see the housing market follow over the next 6-18 months, which could be the foundation for a faster economic recovery.

 

I believe that 1410-1440 is a realistic target this year in S&P, IF the housing market can sustain some momentum. This could also lead the S&P to new highs the S&P by the end of 2014. When looking at the housing market, you have to realize its strength has major implications for the rest of the economy.

 

The bad news for those looking to get involved in the trade? The first, "easy part" of the move has already happened. Right now is probably a time to sit tight. We have seen investors get burned over the last year when chasing stocks or ETFs after big moves, and it is best now to wait for some kind of pullback.

 

The area I will be watching in the Housing Sector Index - HGX - will be $101.64-105.54. This would put it right between the 10-20 day moving averages. Strong groups typically hold this zone and would allow people in without being pigs. The line in the sand for a Composure change is the $97 zone, which, if breached, would suck the momentum out of this group.

 

 

The Index did push through a big trend line today through recent highs, again showing power and strength. This is not just a bottom feeder oversold bounce type of move. A break and close above this level opens the door for a move on the weekly chart to the $130 zone, although as mentioned I will wait for a pullback. That level coincides with the highs from March of 2010.

 

 

The S&P also looks great (and similar) technically. A break and close above 1292 opens the door for a move to 1320-1340 in this first quarter. Then, if we continue to get more positive data and good earnings, 1370 (last year’s high) is in play as the next resistance level perhaps by mid-Summer. Ultimately we may see 1410-1440 at some point this year!

 

IF housing gets better and we see a continued leading indicator like we’ve see with this group, the high end target is not out of question.

 

Back in mid-December we said a bottom was brewing in the OIH around $110-$112. It’s now at $121.25 looks to be on its way. Back on October 8th I gave a 75% chance on Real Money that the October 4th was the low of the year in the markets, and it could into the low for a long, long time.

 

 

 

*DISCLOSURES: Scott Redler is long SPY OIH GS JPM CSCO AAPL

 

Follow me on Twitter @RedDogT3Live

Last Updated ( Wednesday, 11 January 2012 09:50 )
Banner
Banner
© 2012 T3 Live, LLC
  1. T3 LIVE, LLC is NOT a Broker Dealer. T3 LIVE, LLC engages in trader education and training. T3 LIVE, LLC offers a number of products and services, both electronically (over the internet through T3LIVE.com) and in person. Through T3 TV, an online video network that is available through T3LIVE.com, T3 LIVE, LLC provides LIVE pre/post market and stock analysis. Through T3LIVE.com, T3 LIVE, LLC offers the "Virtual Trading Floor", a community through which independent traders (subscribers), as well as select T3 Trading Group, LLC Traders, observe a virtual trading floor environment (as described below) for educational purposes. T3 LIVE, LLC also offers web-based, interactive training courses on demand.
  2. Subscribers are able to see if traders are long or short and what symbols as part of best practices in regards to disclosure. Subscribers do not see trader' screens, trades or size of positions. T3 requires traders to disclose whether they are long or short and which stocks they are trading to ensure that the community is fully informed and that traders substantiate their opinions. This approach is modeled after the analyst disclosures that accompany commentary on particular stocks on CNBC or other financial news media (as per FINRA Rules 2210 and 2711).
  3. The seminars given by T3 LIVE, LLC are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decisions you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.
  4. This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by T3 LIVE, LLC or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.
  5. The videos and blogs shown on T3 LIVE, LLC are for informational purposes only. The investment ideas and expressions of opinion may contain forward looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell securities. T3 LIVE, LLC statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio.
  6. T3 LIVE, LLC and T3 Trading Group, LLC are separate, but affiliated companies.
  7. T3 Trading Group, LLC is a Registered SEC Broker-Dealer and Member of the CBOE Stock Exchange (CBSX www.CBOE.com). All trading conducted by contributors on Virtual Trading Floor is done through T3 Trading Group, LLC. For more information on T3 Trading Group, LLC please visit www.T3Trading.com.
  8. Global Trading Plus, LP (“GTP”) is the exclusive provider of T3 LIVE, LLC products in Europe, all the former Soviet Republics (dating back to 1991), and Israel. GTP is a separate company and has no common ownership with T3 LIVE, LLC, T3 Trading Group, LLC.