Continue to avoid Homebuilders.
TPA has been telling clients to avoid the homebuilders for a month, and we reiterate that negative stance.
Below is the chart for the Home Construction ETF ITB. IT fell below its steep 10-month uptrend line in mid-September and has established a consistent pattern of lower highs and lower lows; a downtrend.
The table below is from this week’s TPA-RRG report, showing that ITB has been among the 5 worst ranked sectors for the past 7 weeks.
The sector RRG from this week’s report shows that ITB has weak relative strength and relative momentum. ITB has dropped out of the Leading quadrant into the Weakening quadrant and is headed toward the Lagging quadrant.
When will it be time to think about buying Homebuilders?
The right time to consider buying Homebuilders is when the Weekly RSI becomes oversold (RSI 30 or lower).
The 2-year weekly chart below shows ITB’s weekly RSI is now 42. The chart also shows that lows in ITB in 2020 and 2022 coincided with weekly RSI’s at or below 30.
The 16-year weekly chart below shows the same pattern. Lows in ITB coincided with weekly RSI at or below 30 in 2009, 2011, 2018, 2020 and 2022.
Finally, everyone seems to be waiting for interest rate weakness to signal a time for Homebuilders to reverse course. The 16-year chart below shows that interest levels and direction do not affect Homebuilder stock performance.
Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.