Housing Rebound and the Next “Bull Market”

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The following is an excerpt from Richard Russell's Dow Theory Letters

December 11, 2012 -- Goldman predicts -- Jan Hatzius, chief economist of Goldman, predicts, for the first time since the financial crisis, the economy accelerating to above trend growth in the second half of next year. Then Goldman's commodity analyst, Damien Courvalin, is calling for the great gold bull market to end next year, based on the fact that real interest rates are finally going to start heading higher.

How seriously should we take these predictions? I don't take them seriously at all. First, they are predictions for next year. Nobody on God's green earth knows what next year will look like. If the forecasts are dead wrong, nobody will remember them. If they turn out to be correct, the analysts will trumpet them to high heaven and hope everybody remembers their forecasts.

Often I wonder what I will write about. At those times I fall back on Matthew 7:7 -- "Ask and it shall be given to you, seek and you shall find." So -- then I ask --

I've noticed something unusual in the charts. Below is the S&P homebuilders ETF. It's been rising all during 2012, and now it's in a "broadening formation." If this formation breaks out on the upside, we could see a powerful move to the north.

xhb 7 dec 2012

Below I show the home construction sector going back two years as seen by Dow Jones. Same broadening formation as that seen in the S&P sector. And I ask -- what's going on?

itb 7 dec 2012

And below we see a third chart -- this is the D-J Real Estate Trusts index. I note a H&S bottom breaking out to the upside and above both moving averages. MACD is strongly bullish as is RSI.

djusri 7 dec-2012

Here's what I conclude. We're going to see a rebirth of the housing industry. Already, there is news of a pick-up in home prices in Phoenix and Las Vegas and South Florida. It was the drastic collapse in real estate that triggered the Great Recession. I believe that we're on the edge of a rebound in real estate. I can't think of anything that would be more calculated to turn Americans bullish again.

I believe with housing turning up that the so-called experts and the analysts will jump on the bandwagon and shout that ''a new bull market is underway." Certainly, with volume dying on the various exchanges, Wall Street badly needs something to bring the retail public back. The cry of "Housing is back" should be the ideal antidote to bring the public back and in a buying mood. The Bernanke Fed will whoop it up and boast that their QEs have worked and served to avoid a deflationary depression.

But I'm afraid that the whole brightening situation will turn out to be a phoney. It won't be "another bull market," it will be a Wall Street fantasy that will serve to pump life into the low volume profitless period that has annoyed Wall Street and the stock markets for most of 2011 and this year.

One interesting phenomenon that I note is that the US public has not turned bearish as yet. People are still filling the restaurants and people are still flocking in record numbers to the movie theaters. Retail sales in this early part of the holiday season are better than expected. All that is needed to turn the public wildly bullish again is a pronounced upturn in housing. I think it's going to happen. In fact, it's early, but it's already starting to happen.

One of my daughters bought four houses in the Phoenix area. I asked her whether she is going to buy any more houses in Phoenix. "Home prices are up around 20% in Phoenix," she answered. "I can't find any extreme bargains in Phoenix anymore." That may be the story.

The piece below is from Google yesterday.

BUILDER STOCKS SURGE: Housing Recover Quickly Gaining Steam, Home Builders stocks are surging after a report showed housing starts surged last month to the highest level in more than four years.

Russell Comment -- I think it's starting!

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