Posted by on October 3, 2017 4:51 pm
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Categories: Business Economic bubble Economy Finance Financial crisis of 2007–2008 Financial economics Great Recession in the United States Market trend money NASDAQ NASDAQ 100 Philadelphia Stock Exchange PHLX Stock market crashes

A key index of housing stocks has finally made it back to the highs of last decade’s bubble.

As Dana Lyons explains, one of the, in some ways surprising, achievements of the current bull market in stocks has been its ability to resuscitate former busted bubble sectors once left for dead. For example, early this year we saw the Nasdaq 100 finally break decisively above its dotcom-laden bubble top of 2000. This year has also seen a resurgence in bank stocks, with the dead cats jumping off the financial crisis mat to within spitting distance of their pre-crisis levels. And in this latest rally, we are seeing another former bubble poster child building its way back up to its former highs — housing stocks.

In fact, at the end of last week, the benchmark PHLX Housing Sector Index (HGX) made its way all the way back to its 2005 bubble top for the first time in a dozen years.

So golf claps and trivial tidbits aside, what are the investment ramifications of this achievement for housing stocks? Will the HGX prices have “memory” here near their 2005 highs and provide resistance? Or are 2005’s prices ancient history with no relevance given a wholly different fundamental backdrop for the sector?

Obviously no one has the answers to those questions, including us. I will say that the HGX’s recent breakout above the July-August highs and subsequent follow through has been impressive and the momentum may carry the index further.

However, I will also caution against dismissing the notion of price memory (in the form of resistance) stemming from the 2005 highs. Non-technicians and chartists may scoff at the possibility, but such major junctures on a chart can have a significant impact, even a dozen or more years later. Consider that the Nasdaq first encountered its 2000 highs in mid-2015. It took a full year and a half — and a bumpy one at that — before the index was able to sustain a move to new highs.

So while this rally in housing stocks may have further room to run in the near-term, don’t be surprised if the stocks’ charts are eventually forced to re-build.

So we are back to the bubble highs from 2005 for housing stocks – which proved to be of no signaling potential for the future then – and this time, there’s a little snag too. US housing data has been a disaster in recent months (and don’t blame the storms, NAR isn’t) as affordability crushes the American Dream on a river of One-Percenter-Buy-to-Rent liquidity…

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If you’re interested in the “all-access” version of Dana’s charts and research, please check his new site, The Lyons Share.

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