Tuesday, March 25, 2008

Rally in the Homebuilders

Yesterday I offered up two charts which suggested that investment banks probably put in a bottom last week.

Today I turn my attention to the homebuilders. In the chart of the SPDR Homebuilders ETF below, it appears highly likely that the early January low of 15.18 will be the ultimate low for the cycle, as the index has already climbed over 50% from that level. In fact, yesterday’s intra-day high of 24.45 was the highest this index has traded since September 2007. As the index moves over its 200 day simple moving average for the first time in ten months and shows a sharp upturn in on balance volume, technical signals should continue to improve.

This is not to say, of course, that the homebuilders will move straight up from here. Nevertheless, as the investment banks and homebuilders move off of their recent bottoms, the large amount of cash in money market funds will undoubtedly become less anxious about returning to equities.

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