The supply and demand scenario toward homebuilders and housing related real estate owning real estate investment trusts (REITs) is bullishly tilted toward the industry, as tight supplies and steady to rising demand for housing remains unchanged. The only thing keeping the housing boom from reigniting is high interest rates.
When that changes, expect a resumption of the uptrend in those sectors of the stock market. Until then, all investors can do is remain patient and monitor interest rates.
Where Things Stand
The U.S. Ten Year Note yield (TNX) continues to gallop higher to nearly daily multi-year highs. TNX is now moving above the 4.5% level, which was resistance as early as last week. This is a huge development, given what I described in my recent video on Bollinger Bands, which you can see it here if you missed it.
As you can see on the chart above, TNX is now trading well outside the upper Bollinger Band (solid blue line currently below TNX). This means that bond yields are now ranging well above what is considered a statistically normal trading pattern. When this type of event happens, there is eventually a reversal to the mean, which is the 200-day moving average.
What that means is that there will eventually be a reversal in this trading pattern. And given the extraordinary extent to which TNX is now ranging above the upper Bollinger Band, when the reversal occurs it will be violent, which will likely be bullish for homebuilders and housing related REITs.
I am watching this situation very carefully and compiling a shopping list of related assets which I will unveil at Joe Duarte in the Money Options.com when things line up optimally. You can get details by subscribing to the service here.
What to Watch
I will have individual stock picks when the time is right, which I will reveal for subscribers to Joe Duarte in the Money Options.com. Meanwhile, we continue to monitor the general trend in housing in the present as we wait for the buying opportunity to materialize.
The SPDR S&P Homebuilders ETF (XHB) has been under pressure. I've noted here that the $78 support area was critical. Now, XHB is nearing an oversold level as the RSI is near 30. Moreover, On Balance Volume (OBV) is holding steady as Accumulation/Distribution (ADI) is falling. That means that short sellers (falling ADI) are increasing their bets to the down side on XHB as the ETF is reaching an oversold level and buyers (steady OBV) are not panicking.
Bottom Line
When the U.S. Ten Year Note yield rolls over, the odds will favor a big rally in homebuilder stocks which will trigger a major short squeeze.
I am preparing for that moment and will issue BUY recommendations at the time for subscribers of Joe Duarte in the Money Options.com.
Stay tuned.
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