InTheMoney Stocks

Home-builder Stocks Could be Signaling Problems In 2014

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Traders and investors will look at many different leading stock indexes and sectors for clues to what the economy will do. For example, there are many traders that will strictly follow the transportation sector as a leading indicator. After all, if the transportation stocks are rising, that is a good sign that the economy is growing and expanding. Over the past 20 years there has really not been a better leading indicator than the home-builder stock sector. This industry group has been one of the best tells for the economy, and I believe that still to be the case.

The leading home-builder stocks have been one of the best performing sectors since October 2011. In 2013, the home-builder stocks basically stalled out and traded sideways in a range for most of the year. This important stock sector remains very range bound even at this time. Traders must take note, if the home-builder stocks are unable to break out to new highs over the next couple of months, it will be viewed as a sign of weakness and a breakdown in the sector is very likely.

Some of the leading home-builder stocks that traders should follow include, Toll Brothers Inc (NYSE:TOL), Lennar Corp (NYSE:LEN), D.R. Horton Inc (NYSE:DHI), and KB Home (NYSE:KBH). Traders and investors that want to follow the entire sector can follow the iShares U.S. Home Construction ETF (NYSEARCA:ITB).

Currently, the ITB is trading around the $25.00 area. The ITB is now trading into very good weekly chart resistance. Should a pullback occur the ITB will have solid weekly chart support around the $21.00 level. Unfortunately for the stock market, any decline down to the $21.00 area on the ITB would signal some problems for the U.S. economy and most likely the stock market.

Nicholas Santiago
watch this video on the bat pattern:
Thanks for the link. We don't utilize that pattern as described in the link you provided. There are numerous other patterns/waves that are more accurate. However, many people fail to read/utilize them properly. Make sure you do not cloud your trading judgement with useless analysis. Thanks again
I like the idea and thank you for your input. It's time for a correction! When I was first looking at the chart I saw that clean resistance level. It looks like a bat pattern as well? do you see that too?
What is a bat pattern?
Davis, do you mean "bear pattern?" Nick did note the resistance level for reasons based on his proprietary analysis, a bear pattern is not present in this chart. Thanks
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