Fundamental outlook: Fundamentally, the housing market is still very much in a bear market. According to Austrian business cycle theory, the housing market represents a good short opportunity, as the housing bubble fueled by credit expansion is now being deflated as credit has become more scarce. Economist Mike Shedlock recently had a great post analyzing the housing market, in which he called for a bottom to be 3-5 years away, as we recently discussed.
The excess number of houses already created in the US as a result of the housing bubble, coupled with increasing job losses and tightening credit, makes shorting homebuilders an interesting proposition. US stock market traders can look to short XHB, an ETF tracking homebuilders, to capitalize on this opportunity.
Technical outlook: Technically, there has been some talk of a market reversal getting ready to happen, like we recently discussed. At the time of this writing I'd still prefer to see additional confirmation that a reversal is indeed forming -- preferably gold sustaining a break above 850 -- but if indeed we see a reversal of the trends we've seen for the past few months and the US stock market does rally, it could translate into an opportunity for traders to get short XHB at a higher price.
Below is a chart of XHB that offers some insight into key price levels traders looking to get short may want to watch.
Click to see enlarged image.
Disclosure: No position in XHB or any housing investment.
Discuss on InformedTrades
